Created on December 18, 2025

• EUR/JPY remains in a strong uptrend, but near-term caution is warranted with ECB and BOJ decisions ahead.
• Central bank commentary is key, while structural Japanese constraints continue to favor carry trades against the yen.

The euro has risen quite nicely against the Japanese yen in what would be a continuation of a very strong trend anyway. But one thing that I am worried about is the fact that we have both of these central banks in the next 36 hours or so coming out with interest rate decisions. While the interest rate decisions themselves probably don’t make the headlines, what will make the headlines will be the comments coming out of central bank governors, especially during the press conference.

So, with that being said, even though this is obviously a very bullish market, and I do want to be a buyer, not a seller, the reality is you have to be very cautious over the next couple of days. With that, I’ve noticed a pattern here of about every 200 pips, there is support and resistance. So, if I get a little bit of a pullback here, perhaps down to the 180 yen level, I’ll become very interested. Once we get through both the European Central Bank and the Bank of Japan, then things will be quite a bit clearer.

Why the Carry Trade Still Favors EUR/JPY

Nonetheless, I know what I’m not going to do here. And what I’m not going to do is buy the Japanese yen. I will be buying the euro against the Japanese yen. And I do think that the carry trade continues because no matter what Japan does, they have massive debt problems, where if they raise the rates too much, that causes a real issue. The last 25 years or so of ultra-loose monetary policy have done a real number on the Japanese situation. A collapsing demographic and a high debt level mean they can’t afford higher interest rates for very long.

I think the market knows this, and that’s exactly what it’s sniffing out here. I don’t even necessarily think that the euro is the best currency to trade against the yen. I just think it’s one of many that you can buy in place of it.

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Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.