Euro holds near 12-week high against yen as upbeat Eurozone PMI fails to fuel further gains

The euro is trading near its strongest level in 12 weeks against the Japanese yen, even as fresh data showed the Eurozone services sector expanding at its fastest pace in months. The EUR/JPY pair remains elevated, reflecting a persistent divergence between the European Central Bank’s tightening stance and the Bank of Japan’s ultra-loose monetary policy.

Eurozone PMI data provides support but not momentum

The Eurozone Composite Purchasing Managers’ Index (PMI) for February came in above expectations, driven by a robust services sector. This typically supports the euro, as stronger economic data can lead to higher inflation and a more hawkish ECB. However, the single currency has struggled to push decisively beyond the 12-week resistance level against the yen, suggesting the bullish news was already priced in by the market.

Analysts note that the euro’s recent strength has been more a function of yen weakness than euro strength. The yen continues to suffer from the Bank of Japan’s refusal to signal a shift away from negative interest rates, despite domestic inflation running above target.

Why the yen remains under pressure

The Japanese yen has been one of the worst-performing major currencies in 2025, losing ground against both the dollar and the euro. The primary driver is the interest rate differential. While the ECB has raised rates to multi-year highs, the BOJ has kept its short-term rate at -0.1%, making the yen a funding currency for carry trades.

Market participants are closely watching for any intervention from Japanese authorities. The Ministry of Finance has repeatedly warned against speculative moves, but actual intervention has been limited and largely ineffective in reversing the trend.

Implications for forex traders

For traders, the EUR/JPY pair is a direct play on the policy divergence between the ECB and the BOJ. The current level near the 12-week high presents a technical resistance zone. A break above this level could open the door to further gains, particularly if upcoming Eurozone inflation data remains sticky. Conversely, any surprise dovish tilt from the ECB or hawkish shift from the BOJ could trigger a sharp reversal.

The key risk is Japanese intervention. If the yen weakens too quickly, Tokyo may step in to support it, causing a short-term spike in the pair. However, without a fundamental change in BOJ policy, such moves are typically short-lived.

Conclusion

The euro’s pause near the 12-week high against the yen reflects a market that has already absorbed positive Eurozone data and is now waiting for the next catalyst. The primary driver remains the policy gap between the ECB and the BOJ. Until the BOJ signals a credible exit from negative rates, the yen is likely to remain under pressure, providing a floor for EUR/JPY.

FAQs

Q1: Why is the euro strong against the yen?
The euro is strong primarily because of the interest rate differential. The ECB has raised rates significantly, while the BOJ keeps rates negative, making the yen less attractive to hold.

Q2: What is the Eurozone PMI and why does it matter?
The Purchasing Managers’ Index measures business activity in the manufacturing and services sectors. A reading above 50 indicates expansion. It matters because it is a leading indicator of economic health and influences central bank policy decisions.

Q3: Could the Japanese government intervene in the forex market?
Yes, the Ministry of Finance can intervene by buying yen to support its value. They have done so in the past when the yen weakened too rapidly. However, intervention is typically a short-term measure and does not change the underlying monetary policy divergence.