2026 Euro Trend Forecast: How Central Bank Policies Will Shape the Future of the EUR/JPY Pair

Among the many trading opportunities in the foreign exchange market, the outlook for the euro, a major global reserve currency, is particularly important—especially the exchange rate between the euro and the Japanese yen, which often reflects deep changes in the global economic landscape. As one of the highest-volume cross currency pairs, EUR/JPY not only offers unique investment opportunities beyond the spot market but also features volatility and liquidity that make it a focus for professional traders. So, at this critical milestone in 2026, what are the key drivers shaping the euro’s trend? And what trading opportunities are worth capturing?

Euro and Yen: The Two Most Liquid Currencies Globally

The euro (EUR) holds a prominent position internationally. Since January 1, 1999, when 11 EU countries decided on a unified currency, the euro officially came into circulation on January 1, 2002—physical euro banknotes and coins replaced national currencies within the eurozone. Today, the euro is the largest currency in Europe and one of the most important reserve currencies worldwide.

The path to internationalization for the Japanese yen (JPY) has been somewhat different. Starting with Japan’s accession to the International Monetary Fund in 1964, the yen gradually gained prominence in international trade. As Japan’s economy soared to become the second-largest economy globally and the yen achieved free convertibility, its international status rose accordingly. However, after the bubble burst in the 1990s, the Bank of Japan adopted ultra-loose policies like zero interest rates, leading to massive capital inflows borrowing yen to invest in higher-yield assets, ultimately making the yen a key safe-haven currency.

The EUR/JPY cross rate simply indicates how many yen one euro can buy. But this seemingly straightforward exchange rate encapsulates the policy battles of two major economies, the risk appetite in carry trades, and the overall global risk sentiment.

Why Are Trading Opportunities in EUR/JPY Particularly Rich?

Compared to the spot EUR/USD, EUR/JPY often exhibits larger swings during certain periods—creating opportunities.

A typical example is the European Central Bank (ECB) decision on March 16, 2023. When the ECB announced a 0.5% rate hike, markets were shocked by this hawkish move. The euro immediately strengthened, but since the dollar was still in a rate hike cycle with higher interest rates, the traditional EUR/USD rally was modest. However, because the yen remained at zero rates and carry trade dynamics persisted, EUR/JPY surged 1.1% within just four hours after the decision—8.5 times the EUR/USD gain.

This amplification stems from carry trades: when interest rate differentials widen between Europe and Japan, investors borrow low-yielding yen and invest in higher-yield euro assets, pushing EUR/JPY higher. Conversely, if the differential narrows or the Bank of Japan signals a policy shift, many traders will unwind yen short positions en masse, causing the yen to appreciate sharply and pressuring EUR/JPY lower.

Additionally, fundamental factors heavily influence EUR and JPY. Economic data, central bank policies, geopolitical events—all can create abundant trading opportunities. Moreover, EUR/JPY has strong correlations with other currency pairs like EUR/USD, USD/JPY, GBP/JPY—often highly positively correlated—allowing traders to employ long or short strategies across multiple pairs to enhance returns or hedge risks.

The Evolution of the Euro’s Trend: A 20-Year Perspective

To understand the current euro trend, it’s essential to review its 20-plus years of fluctuations.

2002–2007: European Economic Boom, Euro Appreciates

After the euro’s official circulation, the first five years saw robust European economic growth, while Japan’s economy remained sluggish. Divergent policies by the ECB and BOJ led to a significant euro appreciation against the yen. By early 2007, EUR/JPY approached a historic high near 170.

2007–2009: Financial Crisis and Safe-Haven Yen Surge

The 2008 global financial crisis triggered panic, with funds flocking into the yen as a safe haven. EUR/JPY plummeted, reaching around 112 in early 2009.

2009–2012: Eurozone Debt Crisis

As the global economy recovered, the euro faced persistent pressure due to the sovereign debt crisis starting in 2010. EUR/JPY repeatedly declined, bottoming near 94 in mid-2012.

2012–2016: Eurozone Recovery and Japan’s Loose Policies

From 2012 to 2016, the eurozone’s economic conditions improved, and the new Japanese government launched “Abenomics”—massive monetary easing—leading to yen depreciation and euro appreciation. EUR/JPY entered a clear uptrend, peaking around 149.

2016–2020: ECB Easing and Euro Weakening

During this period, the ECB’s quantitative easing and low interest rates aimed to stimulate growth and inflation. Coupled with slowing economic momentum after 2018, the euro weakened, and EUR/JPY trended sideways or downward.

2020–2023: COVID-19 Pandemic, Inflation, and Reversal

The pandemic prompted unprecedented easing measures, boosting risk assets and increasing carry trade demand for yen. But from 2021 onward, rising inflation in Europe and the start of rate hikes shifted the trend upward. EUR/JPY moved higher, marking a recent rally.

Three Core Factors Shaping the Euro’s Outlook

Understanding the past helps grasp what drives the euro today. The key factors are:

1. Economic Data and Diverging Central Bank Policies

Eurozone and Japan economic indicators—GDP, inflation, unemployment—directly reflect economic health. Strong eurozone growth and falling unemployment suggest a bullish euro. If Japanese data remains weak, EUR/JPY tends to rise.

More critically, policy divergence is pivotal. The ECB remains hawkish, committed to rate hikes, even amid banking sector concerns. The BOJ, on the other hand, maintains ultra-loose policies. This policy gap is a major driver of euro strength. Citibank analysts believe ECB tightening may outpace Fed hikes, supporting a bullish outlook for the euro.

2. Risks from Carry Trade Reversal

Carry trades hinge on interest rate differentials. When the BOJ keeps rates near zero and the ECB hikes, borrowing yen to buy euro assets yields profit. But this is risky: if the BOJ signals a policy shift or inflation pressures force a change, large unwinding of carry trades can occur.

Japan faces rare high inflation, and new BOJ Governor Ueda must consider whether to adjust decades of ultra-loose policy. A policy shift would trigger a wave of unwinding, causing the yen to surge and EUR/JPY to fall sharply—this is the biggest risk to the euro’s outlook.

3. Geopolitical and Global Risk Sentiment

International political events, trade tensions, geopolitical conflicts influence risk appetite. When global outlook dims, investors flock to safe havens like the yen, exerting downward pressure on EUR/JPY.

Notably, OPEC’s policies also matter. In early April 2023, OPEC announced production cuts, boosting oil prices. Rising energy costs can fuel inflation, potentially prompting Japan to reconsider its policies sooner.

Technical Tools for EUR/JPY Forecasting

Beyond fundamentals, technical indicators help traders identify entry and exit points.

RSI Overbought Reversal Strategy

The Relative Strength Index (RSI) measures overbought/oversold conditions. For example, in June 2021, EUR/JPY’s RSI crossed above 70, signaling overbought. By July 12, RSI fell below 70 and rebounded above 50—an exit signal for long positions. At that time, the price dropped from 132.774 to 129.899, yielding a profit of 287,500 yen per standard lot (100,000 euros).

MACD Golden and Death Crosses

The Moving Average Convergence Divergence (MACD) is another powerful tool. On March 14, 2022, MACD on the daily chart showed a golden cross, signaling a buy. After 19 trading days, a death cross appeared on April 8, indicating a potential exit. This trade from 135.161 to 129.271 earned 589,000 yen per lot.

These examples demonstrate that combining technical signals—trendlines, moving averages, Fibonacci retracements—can improve trading accuracy. However, technical analysis should always be corroborated with fundamental insights.

Euro Outlook in 2026: Crossroads of Central Bank Policies

Looking ahead, the euro’s trajectory faces complexity due to uncertain policy paths.

In the short term, the ECB remains hawkish. Despite banking sector risks, the ECB continues to raise rates more aggressively than the Fed. This suggests EUR/JPY could maintain strength, possibly retesting the 2025 high near 148.4. The upward momentum remains intact.

However, the medium to long term hinges on a critical turning point: the BOJ’s policy shift. Rising inflation, OPEC’s production cuts, and energy prices could push the BOJ to reconsider its ultra-loose stance. If that happens, a historic unwinding of carry trades would occur, causing the yen to appreciate sharply and EUR/JPY to enter a long-term downtrend. This represents the biggest test for the euro’s outlook.

Practical Strategies for Trading EUR/JPY

For traders aiming to participate in EUR/JPY, consider these strategies:

Monitor Economic Data Closely

Track key indicators like CPI, GDP, and unemployment from both regions. Better-than-expected data (e.g., high inflation, strong growth) tend to support the euro. These are vital for forecasting.

Interpret Central Bank Signals

Decisions and statements from the ECB and BOJ can reshape expectations. Rate hikes support the euro; dovish comments may weaken it. Anticipate policy timelines and market reactions.

Use Technical Indicators for Precision

Short-term traders can watch daily charts: when prices hit resistance in an uptrend, RSI crossing above 70 and then falling back below signals potential reversals. MACD crosses also offer entry/exit points. Set profit targets near recent highs (e.g., 146.76 in December 2025) and stop-losses accordingly.

Beware of Policy Reversals in the Medium to Long Term

As noted, a BOJ policy shift is the ultimate risk. Keep a close eye on inflation data and BOJ communications. Once signals emerge, be prepared to switch from long to short positions—potentially setting up a decade-long shorting opportunity.

In summary, forecasting EUR/JPY requires integrating technical analysis, fundamental data, and policy insights. Those who can anticipate policy shifts and understand economic cycles will gain a competitive edge in this opportunity-rich market.