EUR/JPY Forecast: BNP Sees Euro Gains Even as Japan Closes Interest Rate Gap

BNP Paribas expects the dollar to buy ¥163 at each quarter-end in 2027, leaving the euro’s six-cent rise against the dollar to carry it towards ¥196.

The euro to yen exchange rate slipped 0.12% to ¥177.01 on Thursday afternoon, leaving the single currency nearly nine yen short of BNP Paribas’s forecast for this December.

The bank expects one euro to buy ¥186 at the end of this year and again next March, then ¥189 in June, ¥192 in September and ¥196 in December 2027.

BNP puts the dollar at ¥163 this December and at every quarter-end in 2027.

Where the extra ten yen come from

BNP’s economists wrote on Monday, “We expect Fed hikes to temporarily offset structural headwinds and support the dollar. EUR/USD would target 1.14 by end-2026, before the dollar’s structural downtrend resumes toward 1.20 by end-2027, although political and fiscal risk may weigh on the euro next year.”

At $1.14 per euro and ¥163 per dollar, a euro buys ¥185.82, which rounds to BNP’s ¥186 forecast for December and March.

Its $1.20 euro forecast for next December works out at ¥195.60 at the same dollar-yen rate.

The rise from ¥186 to ¥196 therefore comes entirely from those six US cents in BNP’s forecasts.

BNP also expects stronger demand in the eurozone, where it puts this year’s growth at 1.1%.

“Growth is expected to strengthen to 1.6% in 2027, bolstered by increased spending on defence and infrastructure, as well as the global investment cycle in AI,” its economists wrote.

Why higher Japanese rates can coexist with a weaker yen

The European Central Bank left its deposit rate at 2.50% in October.

BNP’s economists wrote, “Given persistent inflation and resilient growth, we anticipate another 25bp hike from the ECB in December 2026, bringing the deposit rate to 2.75%, followed by an extended pause. That said, stronger than expected second-round effects could lead to more tightening than our current baseline.”

For Japan, BNP expects growth to slow to 1.0% this year.

“Higher inflation and production costs associated with the energy shock are expected to weigh on the economy’s overall performance. On the other hand, the latter is supported by fiscal policy and AI-related investment,” its economists wrote.

Japan’s policy rate stands at 1.25%, its highest since 1995.

BNP puts it at 1.50% this December, 1.75% in March and 2.00% at the end of 2027.

“We expect two more hikes by the end of Q1 2027, followed by a return to a more cautious pace until the terminal rate of +2.5% is reached in H2 2028,” the bank wrote.

Eurozone rates would still exceed Japanese rates at the end of next year, but the gap would have narrowed to three-quarters of a percentage point from 1.25 points today.

On the yen’s prospects against the dollar, BNP wrote, “The USD/JPY appreciation would continue but at a more moderate pace, with the BoJ still behind the curve despite its hikes.”

The Bank of Japan reported on Thursday that October import prices rose 19.2% from a year earlier in the currencies suppliers charged, and 24.8% when expressed in yen.

Would Tokyo let the dollar settle at ¥163?

The dollar came within a fraction of ¥160 overnight.

On Thursday, Japan’s senior currency official Atsushi Mimura warned about the speed of recent moves and reminded traders of the summer’s intervention.

The finance ministry’s figures show Japan bought ¥15.4 trillion against the dollar over three days between 30 July and 3 August.

Citi’s Osamu Takashima and colleagues considered what would happen if a recovery in shares put further pressure on the yen.

They wrote, “On the other hand, if US and Japanese equities recover and the USDJPY reaches around ¥160/$, we expect the Japanese government to intervene to buy the JPY again.”

What this means for the near-term EUR/JPY

If the euro reaches BNP’s $1.20 but the dollar buys ¥160 next December, a euro would fetch ¥192, four yen below the bank’s published forecast.

At ¥160 per dollar, the euro would need to reach $1.225 to buy ¥196.