EUR/JPY: A Strategic Buy Opportunity Amid Policy Divergence and Key Technical Levels

The EUR/JPY cross has long been a focal point for investors seeking to capitalize on divergent monetary policies and favorable technical setups. As of September 2025, the interplay between the European Central Bank’s (ECB) neutral rate stance and the Bank of Japan’s (BoJ) gradual tightening trajectory creates a compelling case for a strategic long position in the pair. This analysis explores how policy divergence and technical momentum align to support EUR/JPY as a buy opportunity, particularly for carry trade strategies.

Policy Divergence: ECB’s Steadfast Neutrality vs. BoJ’s Gradual Tightening

The ECB has signaled its intent to maintain key interest rates unchanged through 2026, with the main refinancing rate at 2.15% and the deposit facility rate at 2.00% [2][4]. This decision reflects the central bank’s cautious approach amid trade uncertainties and a stable inflation outlook, which fell to 1.9% in May 2025 before reaching the 2% target in June [4]. By contrast, the BoJ has committed to a measured tightening cycle, having left its short-term policy rate at 0.5% in July 2025 but hinting at a 25-basis-point hike by year-end, potentially as early as October or January 2026 [1][3].

This widening gap in policy trajectories amplifies the appeal of the EUR/JPY carry trade. Eurozone borrowers can access funds at relatively higher rates compared to Japanese counterparts, incentivizing investors to fund long EUR positions with short JPY. According to a report by Cambridge Associates, central banks like the ECB are likely to keep rates neutral in 2025, while the BoJ’s inflation forecast of 2.7% for fiscal 2025 underscores its readiness to normalize policy [3]. Such divergence creates a natural tailwind for EUR/JPY appreciation, as higher-yielding euros become more attractive relative to lower-yielding yens.

Technical Momentum: Breaking Above Key Resistance

From a technical perspective, the EUR/JPY pair has shown robust bullish momentum. As of September 2025, the exchange rate stands at approximately 172.69, having broken above a horizontal consolidation channel on the 4-hour timeframe [2]. Immediate resistance levels at 172.826 and 173.592 present near-term targets, while critical support levels at 172.130 (23.6% Fibonacci retracement) and 171.685 (38.2%) offer downside protection [2].

The Relative Strength Index (RSI) currently sits at 66.53, nearing overbought territory, which suggests a potential short-term correction or consolidation phase [2]. However, sustained price action above 172.50 would reinforce the bullish case, as it validates the breakout from the consolidation pattern. Traders are advised to monitor the 172.00 level, as a break below this threshold could trigger a retest of deeper support zones [3].

Strategic Implications for Carry Trade and Positioning

The combination of policy divergence and technical strength positions EUR/JPY as a strategic buy opportunity. For carry trade participants, the ECB’s rate neutrality and the BoJ’s anticipated tightening create a favorable yield spread. Meanwhile, the technical setup—characterized by a breakout above key resistance and a well-defined upward channel—provides a structural rationale for further gains.

Investors should consider entering long positions near current levels (172.69) with a target at 173.592, using the 172.130 level as a stop-loss. The pair’s RSI nearing overbought conditions also suggests that volatility may increase, offering opportunities for both directional and range-bound strategies. As noted by FXglory, the EUR/JPY’s price action within an upward channel and higher lows indicate a continuation of the bullish trend [2].

Conclusion

The EUR/JPY cross is poised to benefit from both macroeconomic and technical tailwinds. The ECB’s rate pause and the BoJ’s tightening path create a widening yield differential, while the pair’s breakout above critical resistance levels signals strong near-term momentum. For investors with a medium-term horizon, this confluence of factors presents a compelling case to initiate or add to long positions in EUR/JPY.

**Source:[1] When is the next Bank of Japan interest rate decision? [https://equalsmoney.com/economic-calendar/events/boj-interest-rate-decision][2] EURJPY H4 Technical And Fundamental Analysis For ... [https://fxglory.com/2025/09/02/eurjpy-h4-technical-and-fundamental-analysis-for-09-02-2025/][3] 2025 Outlook: Interest Rates [https://www.cambridgeassociates.com/en-eu/insight/2025-outlook-interest-rates/][4] ECB Interest Rates [https://www.centralbank.ie/statistics/interest-rates-exchange-rates/ecb-interest-rates]