During the early hours of Tuesday’s European trading session, the EUR/JPY pair held steady near 181.60. The Japanese yen had weakened against the euro due to rising concerns over economic instability triggered by a significant 7.6-magnitude earthquake that struck the Tohoku region late Monday.
Furthermore, disappointing gross domestic product (GDP) figures for Japan’s third quarter could also play a role in the yen’s decline. These developments might complicate the Bank of Japan’s (BoJ) decision-making during their upcoming policy meeting.
Technical analysis:
Looking at the daily chart, EUR/JPY is trading at 181.58, with the 100-day exponential moving average trending upwards, indicating a bullish outlook. The price is positioned comfortably above this moving average. Meanwhile, the Bollinger Bands have contracted, and the price is nearing the upper band at 182.02, hinting at reduced volatility and a potential breakout. The RSI currently sits at a solid 63.51, remaining well below overbought levels. A daily close at or near 182.02 could signal further upward movement, but initial support is located around the middle band at 180.68.
As the Bollinger Bands tightened in recent sessions, any decline may find support at the lower band around 179.34, followed by a rise toward the 100-day EMA at 175.67. The moving average’s positive slope maintains a broader bullish sentiment. Moreover, the RSI rose from 62.91 to 63.51, indicating improving momentum. Should the price drop below 179.34, it could lead to a more significant retracement towards 175.67, while maintaining above the midline of the Bollinger Bands could keep a bullish bias for EUR/JPY.
Frequently asked questions about the Japanese Yen
The Japanese Yen (JPY) ranks among the most traded currencies globally. Its value primarily reflects trends in Japan’s economy, influenced by the Bank of Japan’s policies, differences in bond yields between Japan and the U.S., and the overall risk sentiment among traders.
A crucial role of the Bank of Japan is exchange control, making its trends significant for the yen. While the Bank occasionally intervenes in currency markets—generally aimed at devaluing the yen—they do so infrequently, often due to political factors with major trading partners. From 2013 to 2024, the BoJ’s ultra-easy policy increased the divergence from other central banks, which led to a weaker yen against major currencies. Recently, the gradual easing of this policy has started to offer some support to the yen.
Over the last decade, the Bank of Japan’s commitment to an ultra-easy monetary policy has widened its divergence compared to other central banks, especially the U.S. Federal Reserve. This situation has caused a consistent gap between U.S. and Japanese 10-year bonds, favoring the U.S. dollar. However, with the Bank’s recent choice to gradually move away from its ultra-easy stance in 2024, and alongside other major central banks making interest rate cuts, this gap is beginning to close.
Often viewed as a safe haven, the Japanese yen tends to attract investment during market stress. Investors favor the yen in uncertain times, valuing its reliability and stability. As a result, periods of turmoil are likely to boost the yen’s value against riskier currencies.
