Citi analysts forecast that the euro‑yen pair will move below ¥175 per euro in the first half of 2027, even though a modest rebound to roughly ¥183 per euro could occur in the near term. The bank’s base‑case projection for December places EUR/JPY at about ¥181.
The outlook is driven by rising Japanese real interest rates, which Citi attributes to a slowdown in Japanese equity gains. Higher real rates are narrowing the interest‑rate spread between the euro area and Japan, prompting a correction in the currency pair toward levels dictated by the absolute spread.
Citi also notes that a regime shift for EUR/JPY is linked to movements in the USD/JPY pair. The bank sees a change in USD/JPY dynamics as increasingly probable, which would reinforce the downward trajectory for the euro against the yen.
A risk scenario highlighted by Citi involves a sharp correction in Japanese equities. Such a move could expose additional downside for EUR/JPY, mirroring recent volatility seen in USD/JPY.
Overall, Citi’s medium‑term view combines a potential short‑term rally with a longer‑term bias toward a weaker euro relative to the yen, anchored by the evolving Japanese interest‑rate environment.
