Citi Warns of EUR/JPY Decline Below ¥175 Despite Near-Term Rebound Risk

Citi analysts are warning that despite a possible near-term rebound in the EUR/JPY currency pair, they expect it to decline below ¥175 over the coming months.

The bank notes that rising Japanese real interest rates have shifted the dynamics of the currency pair and has likely formed its long-term ceiling this spring.

Citi'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. The bank attributes this to a correction toward the level of the absolute interest rate spread.

A major correction in Japanese equities could expose unexpected downside fragility for EUR/JPY, similar to USD/JPY, according to Citi's risk scenario.