EUR/JPY Hits 12-Month High

As the chart indicates, the EUR/JPY pair has risen above ¥172 per euro — a level last seen in July 2024.

Since early June, the exchange rate has increased by approximately 5.6%. This upward movement is driven by a combination of factors, including:

→ Divergence in central bank policy: The European Central Bank’s key interest rate remains significantly higher than that of the Bank of Japan, making the euro more attractive in terms of yield compared to the yen.

→ US trade tariffs on Japan: The potential imposition of 25% tariffs by the United States on Japanese goods poses a threat to Japan’s export-driven economy, placing downward pressure on the national currency.

→ Eurozone expansion and consolidation: News of Bulgaria’s potential accession to the euro area is strengthening investor confidence in the single currency.

→ Weakness in the US dollar: As the US Dollar Index fell to its lowest level since early 2022 this July, demand for the euro has grown, positioning it as a key alternative reserve currency.

Can the rally continue?

Technical Analysis of EUR/JPY

For several months, the pair traded within a range of approximately ¥156–165 per euro, but has recently broken above the upper boundary of this channel. Based on technical analysis, the width of the previous range implies a potential price target in the region of ¥174 per euro.

It is noteworthy that the rally gained momentum (as indicated by the arrow) following the breakout above the psychological threshold of 170, a sign of bullish market dominance. At the same time, the RSI has surged to a multi-month high, signalling moderate overbought conditions.

Under these circumstances, the market may be vulnerable to a short-term correction, potentially:

→ Towards the lower boundary of the ascending channel (shown in orange);
→ To retest the psychological support around ¥170.

That said, a reversal of the prevailing trend would likely require a significant shift in the fundamental backdrop — for example, progress towards a trade agreement between Japan and the United States.