Japan & Europe: a Mutually Beneficial Friendship Continues

GBP/JPY

Key zone: 205.50- 206.50

Buy: 207.00 (on a confident breakout of the 206.50 level); target 208.50; StopLoss 206.30

Sell: 205.00 (on strong negative fundamentals) ; target 203.50; StopLoss 205.70

Japan is entering a new cycle of economic transformation: the country is gradually moving away from ultra-loose monetary policy, increasing government spending, and facing inflation that—for the first time in decades—has stabilized above the target level. At the center of events is the new policy of Prime Minister Sanae Takaichi, aimed at reflation, income growth, and stimulation of domestic demand. This policy package effectively raises Japan’s debt burden at the moment when the BOJ can no longer keep JGB yields near zero indefinitely.

Currency pairs EUR/JPY and GBP/JPY remain key indicators of carry-trade demand and global risk appetite, reacting to shifts in Japan’s monetary and fiscal conditions.

EUR/JPY

The pair maintains a constructive upward structure supported by the positive yield spread between the ECB and the Bank of Japan. Even though economic activity in the eurozone is cooling, real euro rates remain above Japanese ones, sustaining interest in carry trades. Against this backdrop, EUR looks moderately bullish against JPY in the cross, but without strong widening of the yield differential.

• 1–3 month horizon: expected range 176–184, with regular buy-the-dip opportunities and profit-taking near the upper boundaries.
• Medium-term outlook: more restrained — a decline toward the 172–178 area; under a more aggressive BOJ stance, a correction into 165–170 is possible.

GBP/JPY

The most volatile and liquid yen cross maintains a medium-term upward trend. The UK continues to show persistent inflation and a firm BOE stance. Japan’s fiscal expansion, abundant liquidity, and strong appeal of UK assets support demand for GBP/JPY. The fundamental backdrop remains favorable unless a major market shock occurs.

• Short-term (not suitable for aggressive speculators): range 202–214, with buying interest at 203–206 and profit-taking above 210.
• Medium-term stabilization likely within 195–205; under weaker global risk sentiment — a faster correction toward 185–190.

Key factors to monitor:

• Takaichi’s announcements on new stimuli and fiscal constraints;
• BOJ signals on the pace of policy normalization, including the fate of residual elements of YCC;
• dynamics of inflation and wage growth.

Bottom line:

Japan’s transition to a reflationary model increases JPY volatility. Fiscal measures and rising inflation are reshaping the yen’s traditional fundamental profile, making the market more sensitive to BOJ decisions. The rate differential remains the core driver in EUR/JPY and GBP/JPY: as long as European and UK rates exceed Japanese ones, carry trade continues to generate returns.

Medium-term probability of yen strengthening is rising. BOJ normalization will narrow the rate differential, gradually pushing EUR/JPY and GBP/JPY lower. Short term — wide-range trading; medium term — heightened risk control against potential reversals in favor of JPY.

So we act wisely and avoid unnecessary risks.

Profits to y’all!