EUR/JPY rises to near 172.50 as trade tensions ease, Japanese Yen weakens
- EUR/JPY rises as safe-haven demand eases, fueled by fading global trade concerns.
- The Trump administration has postponed the implementation of tariffs on China for an additional 90 days.
- Market sentiment strengthens ahead of Friday’s upcoming United States–Russia meeting.
EUR/JPY extends its gains for the third successive session, trading around 172.50 during the Asian hours on Tuesday. The currency cross gains ground as the Japanese Yen (JPY) depreciates due to lessened safe-haven demand, driven by dampening global trade concerns.
US President Donald Trump announced late Monday to postpone the implementation of sweeping tariffs on China for an additional 90 days, just hours before the previous agreement between the world’s two largest economies was set to expire. In response, China’s Commerce Ministry announced it would suspend additional tariffs on US goods for the same period, following Trump’s executive order extending the tariff truce.
Traders remain uncertain about the Bank of Japan’s (BoJ) policy outlook, as board members are split on the timing and pace of future rate hikes. Some officials advocate maintaining an accommodative stance for now, pointing to doubts over whether the central bank’s economic projections will materialize.
The currency cross is also supported by a stronger Euro (EUR), likely driven by improving market sentiment ahead of the upcoming United States (US)-Russia meeting on Friday. President Trump and Russian President Putin are scheduled to meet in Alaska on August 15, aiming to find a resolution to the conflict in Ukraine.
The European Central Bank (ECB) ended its latest easing cycle in July after delivering eight rate cuts over the past year, bringing borrowing costs to their lowest level since November 2022 to support slowing Eurozone growth. However, some market participants still anticipate the possibility of another ECB cut before the year ends.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
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