• EUR/JPY flatlines near 177.30 in Friday’s early European session.
• BoJ’s Koeda says the central bank should not become overly cautious about raising interest rates.
• The cross maintains a negative tone below the 100-day SMA, with bearish RSI momentum.
• The first upside barrier emerges at 178.20; the initial support level to watch is 175.65.

The EUR/JPY cross trades on a flat note around 177.30 during the early European trading hours on Friday. Traders remain on high alert for currency intervention from Japanese authorities to prop up the Japanese Yen (JPY).

Furthermore, hawkish comments from a Bank of Japan (BoJ) policymaker could provide some support to the JPY and act as a headwind for the cross. BoJ policy board member Junko Koeda said that there is no need to be excessively cautious about rate hikes given that upside inflation risks remain substantial.

Koeda further stated that the Japanese central bank should adjust its policy rate in a timely manner while keeping in mind the estimated range of the neutral interest rate.

On the Euro front, Citi analysts believe French debt concerns could prompt the European Central Bank (ECB) to pause interest rate hikes after December, or earlier if financial stress spreads across the Eurozone. The ECB is likely to leave its deposit rate unchanged at 2.50% in October but raise it by 25 basis points (bps) in December as inflation runs nearly double its 2% target, according to a Reuters poll.

Japan flows highlight shifting confidence in JGBs and rising Yen headwinds from NISA-driven foreign equity buying

Analysts at MUFG note that September was “a month of turmoil in global bond markets,” reflected in “the selling of foreign bonds by Japanese investors.” In contrast, they highlight that “foreign investors did not show the same aversion to fixed income” and instead recorded “a notable JPY 3,091bn worth of purchases of Japanese bonds.” With September also marking another BoJ rate increase, MUFG suggests this inflow “could be indicative of improved confidence in JGBs after three consecutive months of selling through to August.”

The bank also points to Japan Investment Trust data as “telling,” with “foreign equity purchases totalling JPY 1,360bn in September.” MUFG stresses that “the buying has picked up,” noting that “the 3mth sum of foreign equity purchases totalled JPY 3,949bn, a new record over a 3mth period.” They emphasise that this Investment Trust flow “captures households buying of foreign securities via NISA accounts” and that “the expanded NISA limits adopted in January 2024 continues to have a notable impact.” MUFG calculates that “annualising this 3mth flow implies an outflow of close to JPY 16trn (USD 100bn) and is an increasing negative yen factor.”

Looking ahead, MUFG argues that “providing tax-free opportunities to hold JGBs could well have an impact on the flows to foreign equity markets that is so evident today and given the scale of foreign equity purchases currently would be viewed as a clear yen positive.” Such a move “would be one policy initiative that would help the government reach a target of 40% of household financial assets being invested in domestic securities.” At present, MUFG notes that “nearly half of all household savings are parked in cash deposits and large portions of pensions and investment trusts are invested in foreign securities,” underscoring the potential for policy tweaks to redirect savings back toward domestic markets.

Technical Analysis: Negative outlookf of EUR/JPY remains intact below the 100-day SMA

In the daily chart, EUR/JPY keeps a bearish near-term bias as spot holds beneath the 20-day Bollinger simple moving average (SMA) and well below the 100-day moving average. Price action sits in the lower half of the Bollinger envelope, while the Relative Strength Index (14) around 39 suggests subdued upside momentum and favors continued downside pressure unless resistance levels above are reclaimed.

On the topside, initial resistance level emerges at the 20-day Bollinger SMA near 178.20, en route to the 180.00 psychological level. Sustained trading above this level could pave the way to the upper boundary of Bollinger band at 180.75, with a more significant barrier at the 100-day moving average around 182.90. 

On the downside, the lower limit of Bollinger band at 175.65 offers the next notable support. A clear break below this floor would open the door toward the October 20 low, 2025 of 175.34, followed by the October 2, 2025 low of 172.27.