EUR/JPY Price Forecast: Constructive outlook prevails, first upside barrier emerges above 173.00

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The EUR/JPY cross trades on a positive note near 172.40 during the early European session on Monday, bolstered by improved risk sentiment. However, hawkish remarks from the Bank of Japan (BoJ) Governor Kazuo Ueda might lift the Japanese Yen (JPY) and cap the upside for the cross.

EUR/JPY strengthens to around 172.40 in Monday’s early European session, adding 0.14% on the day.
The positive outlook of the cross remains intact above the key 100-day EMA, with the bullish RSI indicator.
The immediate resistance level emerges at 173.15; the first support level to watch is 171.12.

BoJ’s Ueda spoke at a panel held on Saturday during the Federal Reserve's annual conference in Jackson Hole, Wyoming, saying that wages in his country are expected to remain under upward pressure due to a tight labor market. His comments signaled his optimism that conditions for another interest rate hike were falling into place.

Technically, the constructive outlook of EUR/JPY remains in place as the cross is well-supported above the key 100-day Exponential Moving Average (EMA) on the daily chart. The upward momentum is reinforced by the Relative Strength Index (RSI), which stands above the midline near 55.75, suggesting that further upside looks favorable.

On the bright side, the first upside barrier for the cross emerges at 173.15, the upper boundary of the Bollinger Band. Any follow-through buying above this level could pave the way to the crucial resistance level in the 173.90-174.00 zone, representing the high of July 28 and the psychological level.

In the bearish case, the initial support level for the EUR/JPY is seen at 171.12, the low of August 20. A breach of this level could drag the cross toward 170.45, the lower limit of the Bollinger Band. The next contention level is located at 170.00, the round figure.

EUR/JPY daily chart

Japanese Yen FAQs

What key factors drive the Japanese Yen?

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.

How do the decisions of the Bank of Japan impact the Japanese Yen?

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.

How does the differential between Japanese and US bond yields impact the Japanese 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.

How does broader risk sentiment impact the Japanese Yen?

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.