EUR/JPY hovers around 171.50 after pulling back from yearly highs
- EUR/JPY retreats after marking a one-day high of high at 172.28 on Wednesday.
- The safe-haven Japanese Yen gains ground due to the renewed trade concerns.
- EU Maros Sefcovic said that significant progress had been made toward reaching a framework trade agreement with the US.
EUR/JPY continues its deterioration for the second successive session after pulling back from a one-year high of 172.28, reached on Wednesday. The currency cross is trading around 171.40 during the Asian hours on Thursday.
The EUR/JPY cross depreciates as the Japanese Yen (JPY) receives support from safe-haven demand, driven by the renewed trade concerns. US President Donald Trump unveiled a new wave of tariff demand letters on Wednesday, sparking concerns about a renewed global trade war. These letters outline individual tariff rates ranging from 20% to 50% for eight countries starting August 1. Additionally, Trump has announced the new 50% tariff on US copper imports, which will take effect on August 1, per Reuters.
However, the Japanese Yen (JPY) may struggle as trade negotiations between the United States (US) and Japan showed signs of strain, particularly over Japan’s rice market protections. This follows US President Donald Trump’s announcement of a 25% tariff on Japanese goods, effective August 1.
Japan is pushing for ministerial-level tariff negotiations with the United States (US) ahead of the August 1 deadline. Tokyo is looking to set up talks between its chief negotiator, Ryosei Akazawa, and US Treasury Secretary Scott Bessent at the World Expo on July 19. Japan is also seeking to arrange a preliminary phone call and potentially a meeting between Prime Minister Ishiba and Secretary Bessent.
On Wednesday, European Union (EU) trade chief Maros Sefcovic stated that "good progress" had been made toward a framework trade agreement with the US, suggesting a deal could be reached "potentially even in the coming days." He also highlighted that the extended deadline offers additional time to conclude negotiations. However, Italian Economy Minister Giancarlo Giorgetti warned that the talks remain “very complicated” and could stretch to the final hour.
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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