EUR/JPY Holds High as Yen Shorts Build Again

Quick Take

EUR/JPY is still trading with an upward bias, but the move is no longer risk-free. Reuters reported that the yen was around 186.90 per euro after the Bank of Japan held rates, while investors have rebuilt aggressive short-yen positions close to levels last seen around Japan’s 2024 intervention episode.

What Is Supporting EUR/JPY

The first support comes from the yen side. The BOJ kept its policy rate unchanged at 0.75%, and Reuters reported that the yen briefly strengthened after the decision before giving back the move as Governor Kazuo Ueda’s comments left investors less convinced about an immediate policy shift.

That matters because EUR/JPY is highly sensitive to carry-trade positioning. When Japan’s real rates remain deeply negative and the BOJ sounds cautious, investors are more willing to borrow yen and hold higher-yielding currencies. Reuters also reported that yen shorts have been rebuilt aggressively as traders test how far Japanese authorities will tolerate the move.

Why the Euro Side Is Helping

The euro is not strong because the eurozone economy looks especially healthy. Its support comes more from inflation and rate expectations. Reuters reported that eurozone consumers sharply raised their inflation expectations, with one-year expectations rising to 4.0% in March from 2.5% a month earlier, while three-year expectations increased to 3.0% from 2.5%.

At the same time, Reuters reported that German state inflation data pointed to a possible rise in national inflation, with economists expecting Germany’s harmonised inflation rate to increase to 3.1% in April from 2.8% in March. That keeps the market alert to the possibility that the ECB may have to stay tighter for longer if energy-driven inflation persists.

Why Chasing Higher Is Becoming Riskier

The main risk is that the yen trade has become crowded. When short-yen positioning becomes too one-sided, even a small policy headline can trigger a sharp squeeze. Reuters noted that the yen is near levels that have previously drawn intervention attention, while Japan and the U.S. have also agreed to strengthen communication on exchange-rate issues.

The BOJ decision also contained a warning signal for yen bears. Reuters reported that the hold was not unanimous, with a rare 6–3 split and three board members calling for a hike to 1.0%. That does not mean a hike is guaranteed immediately, but it does show that internal pressure for tighter policy is increasing.

Near-Term View

My near-term view is that EUR/JPY can stay supported while the market keeps rewarding carry trades and pricing the ECB as more inflation-sensitive than the BOJ. But the upside is likely to be choppier from here because intervention risk, crowded yen shorts, and a more divided BOJ make the pair more vulnerable to sudden pullbacks.

Conclusion

The main point is simple: EUR/JPY still has momentum, but it is no longer a clean one-way trade. The euro has rate-support, the yen is still under pressure, yet the higher the cross moves, the more traders have to respect intervention headlines and BOJ repricing risk.