EUR/JPY: 2025’s Biggest Surprise – The Great Short That Wasn’t

This time last year, I genuinely thought EUR/JPY was set up for a bearish 2025. The European economy looked weak enough to justify multiple rate cuts from the European Central Bank, while the Bank of Japan appeared primed to hike rates to levels not seen in decades. This was exactly the kind of policy divergence currency traders look for, with the added tailwind of yen demand amid expectations of a volatile first term for US President Donald Trump.

From a technical perspective, EUR/JPY was on track to print a shooting star on the yearly chart, while a loose head-and-shoulders formation appeared to be developing on the monthly chart. Taken together, it looked like a clear recipe for a materially weaker EUR/JPY.

View related analysis:

Why EUR/JPY Looked Set for a Bearish 2025

At the macro level, the setup appeared straightforward. Europe’s growth outlook was deteriorating, inflation pressures were easing, and markets were positioning for an extended ECB cutting cycle. Japan, by contrast, was finally emerging from decades of ultra-loose policy, with traders expecting the BOJ to normalise rates more aggressively.

Technically, the warning signs were also there. A potential shooting star near long-term resistance suggested exhaustion, while the developing head-and-shoulders structure pointed to downside risk if support gave way. With fundamentals and charts aligned, the bearish EUR/JPY case looked compelling.

Chart analysis by Matt Simpson - data source: ICE, TradingView

2025 Had Other Plans for EUR/JPY

Instead, EUR/JPY is up 13.3% year to date at the time of writing — or nearly 20% from the February low — proving that view decisively wrong. Not only has the cross risen for a sixth consecutive year, 2025 has been its strongest year in 12, and it now trades just 2% below its 1990 high.

So what went wrong? The macro logic wasn’t entirely flawed, but the intensity and market impact were misjudged. The short EUR/JPY thesis looked promising in Q1, with long yen positions surging on expectations of a hawkish BOJ. In reality, the central bank has only just hiked rates to 0.75% in recent weeks — well short of the multiple hikes traders were positioned for a year ago. At the same time, the ECB proved less dovish than expected, helping underpin the euro.

Chart analysis by Matt Simpson - data source: ICE, TradingView

Trump’s Tariff Reversal Undermined Yen Support

The real fly in the ointment may have been trade policy rather than central banks. While the initial threat of aggressive tariffs triggered risk-off flows that supported the yen, the subsequent reversal of those tariffs proved far more bullish for risk appetite than the original threats were ever bearish.

As risk sentiment improved, safe-haven demand for the yen faded, undermining one of the key pillars of the bearish EUR/JPY case. That shift ultimately worked against the yen — and helped keep EUR/JPY bid despite what initially looked like a textbook setup for a lower cross.

EUR/JPY Technical Outlook: Euro vs Japanese Yen

The monthly chart remains in a strong uptrend, with no imminent sign of a top. While prices are clearly extended from their 10- and 20-month moving averages and monthly RSI is overbought, those conditions alone are not reversal signals.

A pullback at some point is inevitable — particularly if the Bank of Japan delivers another rate hike — but stripping away expectations and focusing purely on price action, it is difficult to argue for a sustained bearish reversal. At this stage, the more likely outcome remains a series of natural retracements within a broader bullish trend.

After disappointing hawks for most of the past year, the BOJ has already shown it can underdeliver. There is little reason to assume next year will be materially different.

View the full economic calendar

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

FOREX.com is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment and CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.forex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.forex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 42.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.

Delayed London Stock Exchange (LSE) Data

The London Stock Exchange (LSE) market data displayed or referenced on this website is provided on a delayed basis and is not in real time. The delay period may vary but is typically at least 15 minutes. This data is intended for information purposes only and should not be relied upon for trading, investment, or other financial decisions. We do not guarantee the completeness, reliability, or suitability of the data for any particular purpose. Users should consult real-time data sources and obtain professional advice before making any financial decisions.