176.00: EUR/JPY Holds Above Level Despite Bearish Price Forecast

175.10, the 12-month low, is a potential downside level for EUR/JPY.
Near 35.98, the 14-day Relative Strength Index points to weak upward momentum, not oversold conditions.
176.60 marks the first resistance level at the nine-day EMA.

EUR/JPY trades near 176.20. The cross is firmer for a second consecutive day during Tuesday’s Asian session. However, the descending channel on the daily chart indicates that the technical outlook remains clearly bearish.

Trading below both the nine- and 50-day Exponential Moving Averages (EMAs), EUR/JPY retains its bearish bias. With these short- and medium-term averages sitting above the price, rebounds appear constrained. Meanwhile, a 14-day Relative Strength Index (RSI) reading of 35.98 indicates weakness and limited upward momentum, rather than outright oversold conditions.

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A potential test of 175.10, the 12-month low recorded on 23 October, could precede a move towards the descending channel’s lower boundary near 174.80. A break beneath this support confluence would leave scope for EUR/JPY to approach the 15-month low of 169.72.

Initial resistance stands at 176.60, the nine-day EMA. Beyond that, the descending channel’s upper boundary near 178.50 presents the next hurdle, ahead of the 50-day EMA at 179.26. Breaking above this medium-term moving average would trigger a bullish reversal and support a move towards the record high of 187.95 set on 17 April.

Chart Analysis EUR/JPY — EUR/JPY: Daily Technical Chart

1.25% BoJ rate hold expected ahead of next tightening step

A pause to assess the latest rate increase remains the market expectation, according to Elias Haddad of Brown Brothers Harriman. He notes that the Bank of Japan is “widely expected to keep rates on hold at 1.25% and assess September’s 25bps hike before tightening again,” highlighting expectations that policymakers will evaluate the recent increase before considering another policy rate adjustment.

(The technical analysis of this story was written with the help of an AI tool. Learn more.)

Bank of Japan: Key questions

What role does the Bank of Japan play?

Japan’s monetary policy is set by its central bank, the Bank of Japan (BoJ). The institution is mandated to issue banknotes and manage currency and monetary conditions to maintain price stability, defined by an inflation target of around 2%.

2013 onwards: How has Bank of Japan policy evolved?

Against a backdrop of low inflation, the Bank of Japan adopted ultra-loose monetary policy in 2013 to stimulate economic activity and lift prices. Its approach centres on Quantitative and Qualitative Easing (QQE), which involves printing money to purchase assets, including government and corporate bonds, and inject liquidity. The BoJ expanded this strategy in 2016, easing further by introducing negative interest rates and subsequently taking direct control of its 10-year government bond yield. A rate increase in March 2024 marked an effective retreat from that ultra-loose stance.

How does Bank of Japan policy affect the Japanese Yen?

Large-scale stimulus from the Bank weakened the Yen against its major currency peers. The decline intensified in 2022 and 2023 as the Bank of Japan’s policy increasingly diverged from that of other leading central banks. Those institutions raised interest rates sharply to combat inflation at multi-decade highs. The BoJ’s stance widened interest rate differentials with other currencies, weighing on the Yen. Some of this trend reversed in 2024 after the BoJ chose to exit its ultra-loose policy stance.

2% inflation target: Why did the Bank of Japan begin exiting ultra-loose policy?

Japanese inflation climbed above the BoJ’s 2% target as a weaker Yen and surging global energy prices pushed prices higher. Expectations of domestic wage growth, a key driver of inflation, also helped prompt the policy shift.