Vladimir Rybakov
Author
Snir Ahiel
Fact Checker
EUR/JPY is expected to trade in a broad 164–199 range through the second half of 2026, with most major forecast houses (ING, LiteFinance, Traders Union, CoinCodex) clustering year-end targets between 181 and 194. The dominant driver remains ECB–BoJ policy divergence, but the dynamic has shifted: the BoJ raised rates 25 bps to 1.00% in June 2026, narrowing the carry-trade spread that fueled EUR/JPY's 2024–2025 rally. The Hormuz oil shock has reintroduced inflation pressure into both economies, complicating the central-bank picture.
The EUR/JPY pair has been one of the cleanest expressions of central-bank policy divergence in modern forex markets. From early-2025 lows near 156 to mid-2026 highs around 175–185, the pair has rewarded carry traders, structural-trend followers, and pip-precision technical setups in roughly equal measure.
But the story in 2026 is changing. The BoJ has begun normalization. The ECB is holding tighter for longer. Energy prices have spiked. The simple "buy euro, sell yen" trade that worked in 2024–2025 now requires sharper analysis. This forecast covers the data, the technicals, the three most likely scenarios for the next six months, and how to trade EUR/JPY inside that uncertainty.
As of mid-2026, EUR/JPY trades in the upper 170s after the BoJ's June 2026 25-bp rate hike to 1.00% triggered a modest pullback from earlier highs near 185. The pair remains in a multi-year uptrend, with the 200-day EMA acting as dynamic support. Year-to-date, EUR/JPY is up around 5–7%, modestly below 2025's stronger performance as yen weakness has partially reversed.
A high-level snapshot:
| Metric | Current Reading (Mid-2026) |
|---|---|
| Trend (daily) | Uptrend, weakening at the highs |
| 200-day EMA | Acting as dynamic support |
| ECB policy rate | ~3.75% (held since 2025) |
| BoJ policy rate | 1.00% (post-June 2026 hike) |
| Interest-rate differential | ~2.75% (narrowed from 3.25% in late 2025) |
| Year-to-date performance | +5% to +7% |
| Implied volatility | Elevated post-BoJ hike |
The narrowing differential is the single most important change from the late-2025 environment. The carry trade is still positive — but less attractive than it was 12 months ago.
EUR/JPY's primary driver is the interest-rate differential between the ECB and BoJ. In mid-2026 the spread sits at approximately 2.75% — down from 3.25% in late 2025 — after the BoJ's first rate hike of the cycle. The ECB is on hold; the BoJ has signaled the possibility of further normalization. The trajectory of the spread determines the trajectory of the pair.
The European Central Bank held rates at 3.75% through the first half of 2026, citing sticky services inflation and resilient labor markets. Eurozone headline inflation hovered near 2.0% through H1 2026, with core inflation around 2.3% — both close enough to the ECB's 2% target to justify a hold, but not so far below that cuts are urgent. The ECB has been explicit that any cuts will be data-dependent and gradual.
For EUR/JPY, this means the euro side of the carry equation remains stable. A surprise dovish pivot from the ECB would compress the spread further; absent that, the euro retains its yield advantage.
The Bank of Japan's June 2026 hike to 1.00% marked the most significant shift in Japanese monetary policy in over a decade. The move was telegraphed and priced in, which is why EUR/JPY's reaction was modest rather than dramatic. The BoJ signaled "data-dependent" future moves — meaning further hikes are conditional on continued inflation persistence and wage growth.
The structural constraint remains: Japan's debt-to-GDP ratio exceeds 260%, which limits how aggressively the BoJ can tighten without creating funding stress. Most analysts expect the BoJ to take the policy rate to 1.25–1.50% by end-2027 at the fastest, with a real risk that further hikes get delayed if growth weakens.
The 2.75% spread is still positive for the euro and still funds the carry trade. But the trajectory has reversed — late 2025 saw the spread widening (EUR strengthening), 2026 sees it narrowing (EUR weakening incrementally). This change in trajectory is more important than the absolute level.
For traders, the implication: the easy directional trade is over. The setup in 2026 favors range-trading with bullish bias rather than the strong trend-following that worked in 2024–2025. (For the underlying technical patterns that suit this regime, see our guides to the Quasimodo pattern and RSI divergence.)
EUR/JPY rallied from ~156 in early 2025 to ~185 in early 2026 — a 19% gain — driven by widening ECB–BoJ spreads, persistent yen weakness, and risk-on positioning across major equity markets. The pullback to the upper 170s in mid-2026 reflects the BoJ's policy shift and the Hormuz oil shock's impact on both regions.
A practical timeline:
The 2024–2025 phase was driven by an expectations gap — markets pricing the ECB to tighten further while assuming BoJ would never normalize. As the BoJ has now demonstrated it will hike (even modestly), that expectations gap is closing. The pair's behavior has shifted from one-way trend to range-bound with bullish bias.
EUR/JPY is technically supported by a multi-year ascending channel from 2024 lows. Key support sits at the 200-day EMA (~170), with major resistance at the 2026 high near 185. The 175 psychological level is currently acting as the pivot. Momentum indicators (RSI, MACD) are neutral, signaling a consolidation phase after the BoJ-driven pullback.
| Level | Significance |
|---|---|
| 185.00 | 2026 high; major resistance |
| 180.00 | Round-number resistance |
| 175.00 | Current pivot; psychological mid-level |
| 170.00 | 200-day EMA; dynamic support |
| 165.00 | Mid-2025 low; major support |
| 156.00 | Early-2025 low; structural support |
The technical setup suggests a range-bound consolidation between approximately 170 and 185 through Q3 2026, with potential for a breakout (either direction) into Q4 2026 as central-bank policy clarity emerges.
The three most likely scenarios for EUR/JPY through end-2026 are: bullish continuation toward 188–195 (50% probability), range-bound 170–185 consolidation (35% probability), and bearish pullback toward 162–168 (15% probability). The dominant variable across all three is the BoJ's next move and the durability of the Hormuz-related energy shock.
Path: EUR/JPY breaks above 185 resistance, targeting 188–195 by year-end 2026.
Triggers:
Forecast alignment:
Trade implications: Bullish breakouts above 185 with target at 188 (Target 1) and 195 (Target 2). Stop below 180.
Path: EUR/JPY trades within 170–185 through end-2026, no decisive breakout in either direction.
Triggers:
Forecast alignment:
Trade implications: Range-trade setups — sell resistance at 183–185, buy support at 170–172. Avoid trend-following strategies in this regime.
Path: EUR/JPY breaks below 170, targeting 162–168 by end-2026.
Triggers:
Forecast alignment:
Trade implications: Watch 170 as the key trigger level. A daily close below 170 opens 165 and 162. Stop above 175.
Major forecast houses cluster end-2026 targets between 181 and 194, with most assuming continued (but slower) euro strength. Forecast summary as of mid-2026:
| Source | End-2026 Target | Range |
|---|---|---|
| ING Think | 185 (Q3/Q4) | 184–186 |
| LiteFinance | Gradual euro strengthening | Range to 190 |
| CoinCodex | 194 | 185–199 |
| Traders Union | Variable | 164–195 |
| ExchangeRates.org.uk | 181.81 (Dec) | — |
The dispersion (181 to 194) reflects genuine uncertainty about the BoJ's pace and the durability of the Hormuz shock. All forecasts are conditional — they reframe quickly when actual policy decisions diverge from expected paths.
Forecasts are projections, not predictions. They reflect specific assumptions about central-bank behavior, inflation, and risk sentiment — each of which can shift in weeks. Treat them as scenarios to plan against, not numbers to bet on.
The four main risks to the EUR/JPY forecast are: a faster-than-expected BoJ hiking cycle, a worsening Hormuz oil shock, a Eurozone growth shock triggering ECB dovish pivot, and a global risk-off event causing yen safe-haven flows. Any of these could move the pair 5–10% within weeks.
The single biggest downside risk. If the BoJ hikes to 1.50% or higher in H2 2026 (faster than current market expectations of 1.00–1.25%), the spread compresses dramatically and EUR/JPY could test the 165–170 zone.
Watch: BoJ minutes, inflation prints, wage data.
If energy prices spike further, both Eurozone and Japan suffer — but Japan suffers more due to its near-total energy import dependence. A worsening shock weakens the yen disproportionately, providing upside support to EUR/JPY but only if Eurozone growth doesn't collapse with it.
Watch: Brent crude, Japanese import data, Eurozone industrial production.
A Eurozone recession would force the ECB to cut faster than expected, compressing the spread and pulling EUR/JPY lower. Manufacturing PMI is the early signal.
Watch: Eurozone PMI, German IFO, ECB speeches.
EUR/JPY has historically correlated 0.6–0.7 with major equity indices. A major risk-off event (significant equity sell-off, geopolitical escalation, sovereign debt scare) triggers yen-buying as a safe haven and pulls EUR/JPY lower regardless of policy fundamentals.
Watch: S&P 500, VIX, geopolitical headlines.
The 2026 environment favors range-trading and scenario-based positioning over trend-following. Use the 170–185 range as the operating band, with breakouts above 185 or below 170 as scenario triggers. Position sizing should account for higher volatility post-BoJ hike — 0.5% per trade is sensible at the current ATR.
1. Range-trade the consolidation:
2. Trade the breakout if 185 cracks decisively:
3. Trade the breakdown if 170 cracks:
4. Carry-trade with reduced size:
EUR/JPY's ATR has expanded post-BoJ hike. Position sizing should reflect this. A trader who risked 1% per trade in late 2025 should probably risk 0.5–0.7% in mid-2026. For the underlying drawdown management framework, see our complete guide to drawdown in trading.
EUR/JPY suits both Pipcy Classic and the Pips Mastery Challenge, but the 2026 elevated-volatility environment makes Pips Mastery's fixed lot sizes particularly useful for risk control. A pip-based evaluation removes the temptation to oversize on what looks like a "clean" technical setup.
Specific considerations for trading EUR/JPY inside a prop firm challenge:
Major forecast houses cluster end-2026 EUR/JPY targets between 181 and 194. ING projects 184–185 for Q3/Q4 2026. CoinCodex targets 194 by end-2026. LiteFinance and Traders Union project a 164–195 range. The dispersion reflects genuine uncertainty about BoJ pacing and the Hormuz oil shock's duration.
EUR/JPY rallied from ~156 in early 2025 to ~185 in early 2026 primarily because of the wide interest-rate spread between the ECB (3.75%) and BoJ (0.10–0.50% during that period). The spread funded carry trades that pushed the pair higher. The June 2026 BoJ hike to 1.00% has begun to compress that spread, slowing the rally.
The Bank of Japan raised its policy rate to 1.00% in June 2026, a 25-basis-point hike. This was the most significant Japanese monetary policy shift in over a decade. The BoJ has signaled further moves are data-dependent and gradual.
The European Central Bank has held its main policy rate at 3.75% through H1 2026, citing sticky services inflation and resilient labor markets. The ECB has been explicit that any future cuts will be data-dependent.
The current ECB–BoJ spread is approximately 2.75% (ECB at 3.75% minus BoJ at 1.00%). This is down from 3.25% in late 2025 and substantially below the 3.65% spread seen at peak EUR/JPY rally. The narrower spread reduces carry-trade attractiveness but the trade remains positive on EUR longs.
Major resistance sits at 185 (2026 high), with 180 as round-number resistance and 175 as the current pivot. Support sits at 170 (200-day EMA), with 165 and 156 as deeper structural levels. The 170–185 range is the dominant consolidation band in mid-2026.
Possible, with around 50% probability based on the bullish-continuation scenario. The trigger would be a combination of ECB holding firm, BoJ delaying further hikes, easing Hormuz energy shock, and risk-on equity sentiment. The daily close above 185 with strong volume is the technical confirmation signal.
Possible but with lower probability (around 15%). The bearish scenario would require a faster BoJ hiking cycle, a Eurozone recession triggering ECB cuts, or a major global risk-off event causing yen safe-haven flows. Watch the 170 level as the key trigger.
The Hormuz shock has reintroduced energy-driven inflation pressure into both Eurozone and Japan. The net impact on EUR/JPY is ambiguous — Japan suffers more from energy imports (yen-weakening), but the inflation pressure also restrains ECB cuts (euro-supporting). The combined effect has been broadly neutral so far, but a worsening shock favors EUR/JPY upside.
Yes, but less than in 2024–2025. The 2.75% spread remains positive on EUR longs and JPY shorts, but the narrowing trajectory and elevated post-BoJ volatility make the trade less attractive than it was 12 months ago. Position sizing should be reduced by 30–50% compared to 2025 levels.
The 4H and daily timeframes produce the highest-quality setups for the current 170–185 range environment. Lower timeframes (5M, 15M) generate too many false signals; weekly timeframes form too rarely for active trading. For Pipcy prop firm challenges, 4H is the sweet spot.
EUR/JPY historically correlates moderately positively with EUR/USD (around 0.4–0.5) and strongly with USD/JPY (around 0.6–0.7). It correlates positively with S&P 500 and major equity indices (around 0.6) — confirming its risk-on character. Trading EUR/JPY without watching these correlated pairs misses important context.
For monetary policy: ECB and BoJ official statements, FXStreet, Reuters. For technical analysis: TradingView for charts, Forex.com and Capital.com for outlook updates. For forecasts: ING Think, LiteFinance, CoinCodex, Traders Union. Cross-reference multiple sources — single-source forecasts are unreliable.
Re-evaluate on every major BoJ meeting, ECB meeting, Eurozone CPI/PPI release, Japanese inflation print, and major Hormuz-related news. In practice, that's roughly twice a month. The thesis can shift quickly when policy-related data prints diverge from expectations.
If you trade EUR/JPY as part of your strategy, both Pipcy challenges support it:
Pipcy Classic — multi-asset structure including all major forex pairs, percentage-based 18% target, 12% absolute drawdown. Suits traders running multi-pair forex strategies who think in dollar P&L.
Pips Mastery Challenge — pip-based 500 or 750 pip target, fixed lot sizes, news trading permitted. Suits traders who measure their trading in pips and want structural protection during high-volatility periods (relevant for EUR/JPY in mid-2026).
Both challenges share the same 95% profit split, 48-hour payout, and no-daily-drawdown structure. For a full side-by-side comparison, see our Pipcy Classic vs Pips Mastery guide.
For the broader context on how to build the trading framework that supports forecasting trades like this, see our funded trader mindset guide and the why 90% of traders fail prop challenges breakdown.
Trade with the data, respect the levels, protect the capital.
Reviewed by Vladimir Rybakov, Head of PIPCY Academy. CFTe-certified financial technician with 19 years of market experience. Fact-checked by Snir Ahiel, Co-founder of The5ers, 15+ years trading Forex, Stocks, and Options.
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