The EUR/JPY pair has weakened to around 185.25 in early European trading. The Japanese Yen may gain strength from safe-haven demand, but worries about Japan’s fiscal health could limit its rise. Japan’s Prime Minister Sanae Takaichi has called for snap elections on February 8 and plans to ease fiscal policy. Takaichi’s proposals to cut taxes and boost spending raise concerns about Japan’s financial stability, which could impact the Yen and the EUR/JPY pair.

Technical Analysis

From a technical standpoint, the EUR/JPY remains above the 100-day EMA at 179.43, showing a strong upward trend. The price is nearing the upper Bollinger Band at 185.45, while the RSI at 61 indicates bullish momentum. Key support levels are identified at 184.00 and the 100-day EMA at 179.43. The Japanese Yen, one of the most traded currencies globally, is affected by various economic factors. These include the Bank of Japan’s policies, bond yield differences, and trader sentiment. The Yen is seen as a safe-haven currency, gaining strength during periods of market stress due to its perceived reliability. Currently, the EUR/JPY pair is hovering around 185.25, caught between a strong upward trend and emerging geopolitical risks. US tariff threats are increasing demand for the safe-haven Yen, placing a temporary limit on the pair’s rise. This scenario creates a balance between bullish momentum and risk-averse sentiment that must be navigated carefully. The upcoming snap election in Japan on February 8 is likely to weigh on the Yen. With Japan’s debt-to-GDP ratio exceeding 263% in 2025, Prime Minister Takaichi’s fiscal stimulus promises are unsettling bond markets. This fundamental issue for the Yen supports the idea of a higher EUR/JPY in the medium term.

Safe Haven Dynamics

Nonetheless, immediate safe-haven flows are significant. The Cboe Volatility Index (VIX) has risen from a low of 13 to over 17 this past week, indicating that traders are factoring in new geopolitical uncertainty. This volatility can lend short-term support to the Yen and possibly pull prices down toward the 184.00 support level. We recall how the Yen responded to the Bank of Japan’s policy changes throughout 2025, leading to sharp, though often brief, price movements. While the central bank’s gradual policy adjustments have been a backdrop, this new fiscal uncertainty is now the main driving force. The market is balancing the potential for future currency devaluation against immediate risk aversion. Given this situation, there is an opportunity in the options market, as implied volatility is expected to rise ahead of the election. Consider buying call options to prepare for a potential price increase while keeping risk manageable. A break above the resistance level of 185.45 could lead to a significant upward movement. Create your live VT Markets account and start trading now.

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