The EUR/JPY cross edges higher to near 175.65 during the early European session on Monday. The Japanese Yen (JPY) softens against the Euro (EUR) as the dovish Sanae Takaichi is poised to become the first female Prime Minister. The German September Producer Price Index (PPI) report will be published later on Monday.
The Liberal Democratic Party (LDP) is teaming up with the Japan Innovation Party (JIP), and the market’s betting this alliance will keep Japan’s easy-money policies alive. A parliamentary vote to choose a prime minister is set for Tuesday. Sanae Takaichi is expected to become Japan’s next Prime Minister, raising market expectations for big spending and loose monetary policy. Traders anticipate that the Bank of Japan (BoJ) would further delay raising interest rates, which would drag the JPY lower and act as a tailwind for the cross.
Technically, the constructive outlook of EUR/JPY remains in place, with the price being well-supported above the key 100-day Exponential Moving Average (EMA) on the daily chart. The upward momentum is reinforced by the 14-day Relative Strength Index, which stands above the midline near 56.85. This suggests that further upside looks favorable in the near term.
On the bright side, the first upside barrier emerges in the 176.90-177.00 zone, representing the high of October 13 and the psychological level. Sustained trading above this level could pick up more momentum and aim for 178.00, a round figure. Further north, the next resistance level is seen at 178.50.
On the downside, the initial support level for EUR/JPY is located at 174.82, the low of October 17. Any follow-through selling below this level could see a drop to 172.35, the lower limit of the Bollinger Band. The additional downside filter to watch is 171.25, the 100-day EMA.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
EUR/JPY daily chart