EUR/JPY Price Forecast: Softens to near 178.50, retains bearish bias despite oversold RSI

Market impact: Bearish EUR/JPY, but vulnerable to a corrective rebound.

The key driver is the widening expectation of Bank of Japan tightening, with the article reporting that policymakers have signaled a possible policy rate increase to 1.25% at the September meeting. That raises Japanese yields and reduces the relative attractiveness of holding euro-funded yen positions, encouraging carry-trade unwinds and supporting the JPY.

For EUR/JPY, the fundamental bias therefore remains negative. A break below the cited 177.17 support would likely reinforce the market’s focus on lower historical support zones near 176.09 and 175.35. This would represent a continuation of yen strength rather than a euro-specific development.

However, the reported RSI near 22 creates significant short-term squeeze risk. Oversold conditions do not reverse a trend by themselves, but they increase the probability of profit-taking or a corrective recovery, particularly if the BoJ does not deliver a more hawkish outcome than markets already expect. The 179.00–180.00 area is the first zone that would need to be reclaimed to weaken immediate downside momentum; a sustained move above it would challenge the bearish technical interpretation.

The broader transmission channel is important: higher Japanese Government Bond yields and a stronger yen could accelerate the reduction of yen-funded carry positions, potentially weighing on other yen crosses such as USD/JPY, GBP/JPY and AUD/JPY. If the move reflects broader risk aversion, high-beta currencies and equities could also come under pressure; if it is limited to BoJ repricing, the effect may remain concentrated in yen markets. The article also highlights the possibility that higher domestic Japanese yields could reduce overseas investment demand from Japanese institutions, adding a medium-term capital-flow risk for foreign bonds.

What traders should monitor:

BoJ guidance and the September policy decision, Japanese wage and inflation data, JGB yields, the pace of yen-short covering, and whether EUR/JPY can hold above 177.17. The bearish thesis would weaken if BoJ expectations are scaled back, Japanese yields stabilize, or the pair rebounds through 179.00–180.00 despite continued yen-positive news.