The Japanese Yen (JPY) strengthened significantly, reaching a seven-month high against the US Dollar (USD) and pressuring the EUR/JPY cross lower, as markets increasingly bet on a potential Bank of Japan (BoJ) interest-rate hike [2][1]. The EUR/JPY pair declined for the second consecutive day, trading around 178.40 during Asian hours, and remains within a descending channel pattern, signaling a bearish bias [1]. Technical indicators show the EUR/JPY cross below both the nine- and 50-period EMAs, with the Relative Strength Index (RSI) at 23.09 in oversold territory, suggesting sellers continue to dominate [1]. The pair is positioned just above support at 177.70, with a break below potentially targeting the 10-month low of 175.70 recorded in November 2025 [1].
Meanwhile, the USD/JPY pair fell to around 153.50 during early European trading, as the JPY's rally was fueled by growing expectations of a BoJ rate hike and speculation about a possible shift in the Government Pension Investment Fund’s asset allocation [2]. Last week, BoJ board member Hajime Takata indicated that a 25-basis-point hike is not guaranteed and that back-to-back rate hikes could be possible, further boosting market expectations [2]. HSBC analysts noted that overnight index swaps now imply around 75 basis points of cumulative BoJ hikes by April 2027, with meaningful odds assigned to a hike at the 18 September meeting, which is considered unusual [2].
Technical analysis for USD/JPY shows the pair maintaining a bearish near-term bias, trading well below the Bollinger Band midline and the 100-day simple moving average, with the RSI at 25 in oversold territory [2]. Resistance levels are identified at 154.70, 158.45, and 159.85, with a more sustained recovery requiring a move above these levels [2]. For EUR/JPY, potential rebounds could target the nine-day EMA at 182.00 and the 50-day EMA at 184.13, with further resistance at 185.70 and the all-time high of 187.95 set on April 17 [1].
The Euro was the weakest major currency against the Japanese Yen today, declining by 0.52% [1]. Market participants are also closely watching upcoming US Producer Price Index (PPI) and Consumer Price Index (CPI) data, which could influence Federal Reserve policy expectations. According to the CME FedWatch tool, Fed funds futures are pricing in roughly a 60% probability of a hike [2].
CONCLUSION
The Japanese Yen's sharp appreciation, driven by heightened BoJ rate hike expectations and technical bearishness in both EUR/JPY and USD/JPY, has created significant downside pressure on these currency pairs. With the Euro notably weak against the Yen and key technical levels under threat, market sentiment remains bearish. Investors are now focused on upcoming US inflation data and further signals from the BoJ, which could determine the next moves in these major FX pairs.