Euro flatlines against Japanese Yen as intervention risks rise

The EUR/JPY cross holds steady around 180.25 during the early European trading hours on Monday. Japan markets are closed for a three-day holiday, leading to low liquidity. Traders remain on high for currency intervention from Japanese authorities to prop up the volatile currency.

The Bank of Japan (BoJ) decided to raise its policy rate by 25 basis points (bps) to 1.25%, the highest level since 1995, as widely expected. However,  a lack of explicitly hawkish guidance disappointed markets, weighing on the Japanese Yen (JPY) against the Euro (EUR). 

Swaps markets have priced in less than 20% for the next policy meeting at the end of October, with 90% odds of a rate increase priced in for the December policy decision.

The Nikkei newspaper reported that Japanese officials conducted rate checks. A rate check involves authorities asking banks for currency quotes to gauge market conditions, which traders view as a precursor to currency intervention.

On the Euro front, European Central Bank (ECB) President Christine Lagarde said that any further interest rate hike by the ECB "will depend on the future.” She added that the central bank would decide "meeting by meeting" what is appropriate, whether that is to hold, increase, or cut interest rates, although cutting rates "is very unlikely at the moment.” 

Yen outlook hinges on BoJ guidance as markets price further hikes

Economists at DBS note that markets are already looking beyond the next policy move, with investors having "priced in a second hike in Dec and a third hike by April next year," leaving the Yen vulnerable if the BoJ underwhelms. They caution that "policy guidance that is not quite as hawkish could see a resumption of JPY selling pressures," given how much tightening is now embedded in expectations. At the same time, DBS argues that the central bank is "hiking from a position of deeply negative real rates," and with "inflation pressures in the pipeline due to energy shocks," it would be "quite a surprise if Governor Ueda does not reinforce a vigilant stance and signal the possibility of more near-term hikes."

Technical Analysis: EUR/JPY remains capped under the 100-day SMA

In the daily chart, EUR/JPY maintains a bearish near-term tone as spot holds beneath the Bollinger middle band and the 100-day Simple Moving Average (SMA). This positioning suggests rallies remain corrective within a broader topping phase, while the Relative Strength Index (RSI) at about 41.7 stays below the 50 line, hinting at still-subdued bullish momentum despite the recent stabilization off the lows.

On the topside, initial resistance is located at the Bollinger middle band near 181.55, with a stronger cap emerging at the 100-day SMA around 184.18 and the upper Bollinger band close to 187.45 if buyers manage a deeper recovery. On the downside, the next notable support aligns with the lower Bollinger band around 175.60, where a decisive break would open the door to an extension of the current bearish leg.