- EUR/JPY is expected to reach around 172.40 during the early European session on Monday, reflecting a daily increase of 0.14%.
- The outlook for the pair remains positive, exceeding the key 100-day EMA, with bullish RSI indicators supporting this trend.
- Key resistance is noted at 173.15, while initial support is seen at 171.12.
During the early European trading on Monday, EUR/JPY started at around 172.40, buoyed by better risk appetite. However, remarks from Bank of Japan Governor Tamura, which lean hawkish, could strengthen the Japanese yen and potentially limit the pair’s upward movement.
At a recent Fed conference in Jackson Hole, Wyoming, Bozi Ueda highlighted that Japan’s wages might see upward pressure due to a tight labor market, indicating his optimistic view that another interest rate hike could be on the horizon.
From a technical perspective, the outlook for EUR/JPY appears robust, bolstered by its position above the crucial 100-day EMA seen on daily charts. The relative strength index (RSI) is also above mid-level, hovering near 55.75, which hints at further upward potential.
On the chart, the first significant resistance level for the pair is around 173.15, which aligns with the upper edge of the Bollinger band. A sustained move above this barrier could lead to important resistance around the 173.90-174.00 range, a notable psychological level from July 28th.
If the market turns bearish, the initial support level to monitor is 171.12, noted on August 20th. If breached, this could pull the pair down to the lower Bollinger band around 170.45, potentially leading to further declines towards the round number 170.00.
EUR/JPY Daily Chart
Japanese Yen Questions
The Japanese Yen (JPY) is among the most traded currencies globally, with its value largely influenced by the health of the Japanese economy and the Bank of Japan’s policy decisions, as well as the bond yield differences with the US and overall trader sentiment.
The Bank of Japan’s role in currency control is critical, impacting the yen’s movements. While the BOJ has intervened directly in the currency market to curb the yen’s value, they do so sparingly due to political pressures. The ultra-loose monetary policy in place from 2013 to 2024 led to increased policy differences with other major banks, subsequently causing the yen to depreciate against other major currencies, though a recent rollback of this policy has provided some support.
For the past decade, the BOJ’s commitment to ultra-loose monetary policy has widened the gap compared to other central banks, especially the US Federal Reserve. This has been significant in increasing the disparity between US and Japanese bond yields, with the US dollar gaining against the yen. The BOJ’s decisions in 2024, in conjunction with interest rate cuts from other central banks, may be starting to narrow this gap.
The Japanese yen is often viewed as a safe-haven currency. Hence, during times of market volatility, investors tend to flock to the yen for its stability and reliability, which can lead to its appreciation against riskier currencies.
