EUR/JPY forecast: Strong Japanese wages boost yen, BoJ rate hike bets

Today, the USD/JPY hit fresh 2025 lows under 153.00, thanks largely to a weaker US dollar and Japanese data showing domestic wages rising at the fastest pace in 28 years. Among the JPY crosses, the EUR/JPY downside remains compelling, given a not-so-strong euro. Therefore, the EUR/JPY forecast looks at least moderately bearish as things stand.

Japanese wages rise above expectations

With Japan’s nominal cash wages surging 4.8% YoY in December—well above the 3.7% consensus – this is reinforcing expectations for potentially two Bank of Japan rate hikes this year and strengthening the case for a firmer yen. Real earnings, meanwhile, also rose 0.6% YoY.

The EUR/JPY has been falling steadily as the yield spread between Japan and the Eurozone have narrowed, but we haven’t yet seen any sharp movements. Could that change now?

As for the euro, well despite a third consecutive day of gains for the EUR/USD pair, the medium-term outlook remains uncertain. The Eurozone still faces drawn-out trade negotiations with the Trump administration, while a dovish-leaning ECB could keep European bond yields subdued relative to Japan.

Against that backdrop, the risks to the EUR/JPY forecast are tilted towards the downside.

Technical EUR/JPY forecast: Key levels to watch

Source: TradingView.com

The EUR/JPY has been steadily making lower highs since October. In November, December and January, it tried on several occasions to break above key resistance and the 200-day average around 164.00-165.00 area. But each attempt failed the bulls, leading to downside pressure. Price action on the USD/JPY has also been a bit heavy despite the US dollar's recent strength against other pairs, making the yen one of the strongest currencies out there. 

Recently, the key 160.00 level had provided a floor on a number of occasions. But this level seems to have given way now. Thus, the EUR/JPY has created an interim lower low, and thereby a clear bearish signal – if the losses can be sustained into the close.

Should the selling pressure persist, the next downside target could be liquidity below the low of December at 156.18. The August 2024 low comes in at 154.41, making that the next obvious objective for the bears to target.

Meanwhile, the broken 160.00 level is now the most important resistance to watch. A daily close back above this level would muddle the technical picture, and raise the potential for a squeeze to 162.00.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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