EUR/JPY rose to about 184.80 in early European trading on Monday, ending a four-day decline and holding above 184.50. The move followed comments from ECB officials that left scope for higher interest rates.
Yannis Stournaras said a modest rate rise could curb inflation without harming the economy. Boris Vujcic said the June decision will depend on incoming data.
Japan’s preliminary Q1 GDP is due on Tuesday, with growth estimated at 0.4% versus 0.3% previously. Stronger growth could limit near-term JPY weakness.
On the daily chart, the pair is trading just below the Bollinger middle band at 185.30. The 14-day RSI is 47.75, close to the midline.
Support levels include the 100-day SMA at 184.30, then 183.50 and the lower Bollinger band at 182.85. Resistance is at 185.30, then 186.24 and the upper band at 187.78.
The JPY is influenced by Japan’s economic performance, Bank of Japan policy, yield differences versus the US, and risk sentiment. The BoJ used ultra-loose policy from 2013 to 2024, then began unwinding it in 2024, affecting bond yield spreads and the currency.
Looking back at the sentiment from 2025, we can see the focus was on the European Central Bank’s hawkish tone and the potential for a rebound in the Japanese economy. Now, in May 2026, the situation has evolved, with the ECB signaling a more dovish stance as Eurozone inflation fell to 1.8% in April. This shift suggests that the upward momentum for the Euro may be slowing down.
The gradual unwinding of the Bank of Japan’s ultra-loose policy, which we were watching in 2025, has resulted in a minor rate hike to 0.1% in March 2026. However, Japan’s economy contracted by 0.2% in the first quarter of this year, limiting any sustained strength for the yen. This leaves the currency vulnerable, especially as the interest rate differential with Europe remains wide.
This continued policy divergence makes long EUR/JPY positions attractive, but with implied volatility ticking up, traders should consider call options to limit downside risk. With the pair now near 195.50, buying out-of-the-money calls with a strike price around 197.00 could offer a cost-effective way to speculate on further upside. This strategy protects capital if the yen unexpectedly strengthens on safe-haven demand.
Alternatively, for those expecting the range to hold due to conflicting economic signals, selling put options below key support levels could generate income from premium. Selling puts with a strike near 193.00, a level that has held firm this month, could be a viable strategy. This approach profits from time decay as long as the EUR/JPY does not experience a sharp decline.
The interest rate differential remains a key driver, just as it was back in 2025. The spread between German and Japanese 10-year government bonds still sits above 250 basis points, rewarding those who are long the euro. This positive carry makes holding long futures contracts or similar derivatives attractive, as traders can earn the daily swap rate while waiting for price appreciation.
