Citi Sees EUR/JPY Plunging Below ¥175 Next Year

Citi analysts are predicting a decline in the EUR/JPY currency pair over the coming months, despite the possibility of a near-term recovery to around ¥183 per euro.

The bank attributes this shift to rising Japanese real interest rates, driven by a slowdown in Japanese equity gains. This has altered the dynamics of the currency pair and Citi expects a correction toward the level of the absolute interest rate spread.

The firm's base case scenario projects EUR/JPY at around ¥181 per euro in December before falling below ¥175 per euro in the first half of next year, assuming current market conditions persist. However, a major correction in Japanese equities during this period could expose unexpected downside fragility for EUR/JPY.