EUR/JPY price forecast after a hawkish BOJ decision

Financial markets have entered a period of low liquidity, characteristic for this period of the year. As Christmas nears, investors and speculators focus on the holidays rather than what happens in the markets.

Even those monitoring the market are doing it so to monitor eventual positions that are still open. Trading big is unlikely.

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Yet, yesterday’s Bank of Japan’s decision to let the yields rise to 0.5% from 0.25% triggered a sharp move lower in the Japanese yen pairs. USD/JPY and EUR/JPY, the most representative, fell by more than 4% in one session, a huge move by all standards.

One of the reasons for such an ample move was the low liquidity environment. It is not the first time in history that the Bank of Japan has chosen a period of low liquidity ahead of Christmas to spook markets. It means that it hoped for a bigger impact than usual – and it was right.

So in this context, what is the EUR/JPY price forecast for the period ahead?

146 – a difficult area to overcome for EUR/JPY

The Bank of Japan stopped anchoring the 10-year yield, and it is likely that this is only the first measure of this kind. In other words, it is difficult to imagine a 2023 where the Bank of Japan does not follow up with measures in the same direction – tightening.

All of this would be interesting to monitor because a new Governor is coming in April 2023. But until then, what do the charts tell us?

The daily EUR/JPY chart shows that 146 was difficult to overcome in 2022. In fact, one may talk about a triple top pattern, with the measured move signaling more weakness towards the 137 and below.

Before summing up, traders should keep in mind that the EUR/JPY is a cross pair. Effectively, it means that it moves based on the differences between the two majors it represents – the EUR/USD and the USD/JPY.

For it to keep declining, either the USD/JPY drops faster than the EUR/USD rises, or the USD/JPY drops, and EUR/USD consolidates. Out of the two scenarios, the latter is more likely.