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EUR/JPY Climbs to Two-Month Highs as Yen Buckles Under Oil Inflation Spiral Fears; BoJ and ECB Both Eye Rate Hikes
Traders' Opinions
Summary:
The Euro extended gains against a beleaguered Japanese Yen for a second consecutive session on Tuesday, with EUR/JPY advancing toward two-month highs near 184.65–184.75 as markets grappled with Japan's deepening inflation vulnerability amid surging oil prices, a 50% priced-in probability of a Bank of Japan rate hike in April, and growing expectations that the European Central Bank will also tighten policy in the near term.
Buy
CLOSEDEURJPY
End Time
184.750
Entry Price
186.300
TP
183.200
SL
185.767 +0.848 +0.46%
198
Points
Profit
183.200
SL
184.948
CLOSING
184.750
Entry Price
186.300
TP
The Euro is grinding steadily higher against the Japanese Yen on Tuesday, with EUR/JPY trading around 184.47 and bulls firmly trained on the two-month high resistance band at 184.65–184.75. The move marks the second consecutive session of gains for the cross and reflects a growing divergence in how markets are assessing the economic vulnerability of Japan versus the Eurozone in the current geopolitical and inflationary environment — a divergence that, in my view, is only beginning to be fully priced in.
At the heart of this story is oil — and more specifically, the profound and structurally asymmetric damage that elevated crude prices inflict on an economy like Japan's. As one of the world's largest net importers of energy, Japan has virtually no domestic buffer against the supply shock that has sent WTI Crude above $101 per barrel in recent sessions. Every dollar added to the price of crude translates almost directly into higher import costs, wider trade deficits, and accelerating price pressures across the Japanese economy — from household energy bills and transportation costs to manufacturing inputs and food production. And with the Strait of Hormuz still firmly under the control of the IRGC Navy, with no credible timeline for reopening, there is no near-term relief valve in sight.
This is the environment in which the Yen finds itself on Tuesday — and it is an extraordinarily difficult one. The currency, which for decades benefited from Japan's perceived status as a creditor nation with vast overseas assets and a structurally deflationary domestic economy, is now facing a fundamentally altered reality. The very dynamics that once insulated Japan from external shocks — low inflation, low yields, current account surpluses — are being systematically dismantled by a combination of surging energy import costs and an ambitious government stimulus agenda under Prime Minister Sanae Takaichi.
The concern that is beginning to dominate investor conversations — and which I believe deserves far more attention than it is currently receiving in mainstream financial coverage — is the risk of a genuine inflation spiral in Japan. The mechanics are straightforward but deeply troubling. High energy costs feed into headline and core inflation simultaneously. At the same time, Prime Minister Takaichi's stimulus programs — designed to cushion Japanese households from the immediate pain of higher energy prices — inject additional demand-side pressure into an already heating economy. The result is a policy trap: the government is spending more to fight inflation even as that spending risks adding fuel to the inflationary fire.
Underlying inflation in Japan has already reached the Bank of Japan's 2% target and, critically, is expected to accelerate further if the Middle East conflict extends into the coming months. This creates an almost impossible dilemma for the BoJ. For years, the central bank struggled to generate inflation at all, keeping rates at ultra-low or negative levels and maintaining one of the most accommodative monetary policy stances in the developed world. Now, inflation is not just at target — it is threatening to overshoot it dramatically, driven not by healthy domestic demand but by an imported energy shock the BoJ has absolutely no power to directly address.
Futures markets have moved decisively in response. As of Tuesday, markets are pricing approximately a 50% probability of a Bank of Japan rate hike in April — a remarkable development given where consensus stood just weeks ago — and are almost fully pricing in a hike before the summer. This repricing is not happening in a vacuum. On Tuesday, former BoJ Monetary Policy Committee member Seiji Adachi delivered what amounted to an explicit endorsement of the hawkish pivot, affirming publicly that the Bank is under genuine pressure to move quickly if it does not want to fall behind the curve on inflation. When former committee members begin speaking with this degree of urgency, markets listen — and rightly so.
From my perspective as a financial reporter who has tracked the BoJ's glacial policy evolution over several years, Adachi's comments represent a significant signaling moment. The BoJ has historically been the most reluctant of the major central banks to tighten, and its communications have been carefully calibrated to avoid startling bond and currency markets. The fact that a credible former insider is now publicly warning about falling behind the curve suggests the internal debate at the BoJ has shifted materially — and that a April hike, while not yet the base case, is a live and meaningful risk that investors ignore at their peril.
For the Yen, the cruel irony of this situation is that a rate hike — which would theoretically be positive for the currency — may not provide the relief bulls are hoping for. If the BoJ hikes into a slowing economy, crushed by energy costs and a government simultaneously borrowing heavily to fund stimulus, the result may be the worst of all worlds: tighter monetary policy that suppresses growth without adequately cooling energy-driven inflation. Japan's public debt-to-GDP ratio is already among the highest in the developed world, and further fiscal expansion to soften the inflationary blow on households will only deepen that burden, raising long-term questions about fiscal sustainability that weigh on sovereign credibility.
On the other side of the EUR/JPY equation, the Euro is finding support from its own central bank's hawkish pivot. The European Central Bank is widely expected to hike interest rates in the near term, with April emerging as the likely meeting where policymakers pull the trigger. The newest member of the ECB's Governing Council, Dimitar Radev, offered a characteristically cautious but telling assessment in a recent Reuters interview. While Radev declined to commit explicitly to April as the date for action, he acknowledged that inflation expectations are at risk of rising faster than in the past — language that, in central bank communication terms, is anything but innocuous. His insistence that further data would be needed before confirming an April decision reads more as procedural caution than genuine dovish pushback, and markets appear to be interpreting it as such.
The ECB's anticipated hawkish turn provides the Euro with a fundamental underpinning that the Yen currently lacks. While both economies face energy-driven inflationary pressures from the Middle East conflict, the Eurozone's monetary policy response is seen as more straightforward — hiking rates to contain inflation without the same degree of fiscal contradiction that complicates Japan's position. The result is a widening rate differential narrative that favors the Euro over the Yen and supports further EUR/JPY appreciation in the near term.
Technical Analysis
, EUR/JPY is carving out a pivotal and potentially decisive moment on the 4-hour chart, with price breaking above a formidable multi-week resistance ceiling at 184.65–184.75 to trade around 184.731. What makes this breakout technically significant is not simply the price level itself, but the number of times this zone has repelled bullish attempts since late February — making the current close above it a meaningful structural development rather than a routine intraday fluctuation. The pair has spent the better part of six weeks trapped within a broad but well-defined range, oscillating between the 182.00 support floor and the 184.65–184.75 resistance ceiling, and the breakout now in progress represents a potential resolution of that range to the upside.
The 9-period EMA and 21-period SMA, currently tracking at 184.45 and 184.24 respectively, have been rising in a tight bullish stack beneath price throughout the recent recovery phase from the 183.50 mid-range support. Both averages are sloping upward with conviction and are now providing a dynamic support corridor between 184.20 and 184.45. Critically, price has separated cleanly from these averages without overextending — a sign that the rally has been orderly and technically healthy rather than driven by a single explosive spike that risks immediate mean reversion. Any pullback that holds above the 184.20–184.45 EMA/SMA zone should be viewed as a continuation opportunity rather than a reversal signal.
The 183.50 horizontal level represents the most important support reference on the 4-hour chart and has been tested and respected on multiple occasions throughout March and into early April. This zone served as both a support base during the mid-range accumulation phase and as a springboard for the current breakout attempt. A corrective pullback that finds support at or above 183.50 would preserve the bullish higher-low structure intact and keep the breakout thesis fully valid. However, a sustained 4-hour close below 183.50 would be a meaningful red flag, suggesting that the breakout above 184.65 was a false move and that the pair risks rotating back toward the lower end of the established range. In that scenario, the 182.00–182.20 structural support floor — which has held every major selloff since late February — would be the next destination for price.
A deeper and more troubling breakdown below 182.00 would represent a full-range failure and would signal a significant shift in the medium-term outlook for EUR/JPY, potentially exposing the 181.50 region and below. Given the strong fundamental backdrop supporting the Euro and the continued Yen weakness driven by Japan's oil-inflation dilemma, such a scenario would likely require a major and unexpected shift in the geopolitical narrative — a ceasefire agreement, a surprise BoJ policy hold, or a sharp reversal in crude prices.
On the upside, the measured move projection drawn on the chart targets the 186.00–186.50 major resistance ceiling — the dominant horizontal supply zone visible at the top of the chart that has capped price on multiple attempts. This level represents the primary bullish target following a confirmed breakout above 184.65, and the distance from the current breakout point to this target implies an approximate 130–180 pip extension — well within the range of what the pair has demonstrated it is capable of across a single directional leg. A sustained close above 186.50 would open the door toward fresh multi-month highs and would signal a more profound structural shift in EUR/JPY's medium-term trend.
The moving average configuration reinforces the bullish conviction. The golden positioning of the 9 EMA above the 21 SMA, with both averages rising beneath an advancing price, is a classic trend-following signal on the 4-hour timeframe. The fact that this configuration has been intact and strengthening throughout the April recovery underscores that momentum is on the side of the bulls — and that dips into moving average support represent opportunity rather than warning.
TRADE RECOMMENDATION
BUY EUR/JPY
ENTRY PRICE: 184.75
STOP LOSS: 183.20
TAKE PROFIT: 186.30
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