EUR/JPY falls back as ECB warns economic risks after easing monetary policy further

• EUR/JPY turns upside down as the ECB anticipates deterioration in the Eurozone economic outlook due to Trump’s tariff measures.
• The ECB has reduced its key interest rates by 25 bps for the sixth time in a row.
• The Japanese Yen fails to capitalize on smooth trade talks between the US and Japan.

The EUR/JPY pair gives up its entire intraday gains and ticks lower to near 161.50 during North American trading hours on Thursday. The pair faces a sharp sell-off as the Euro (EUR) underperforms after the monetary policy announcement by the European Central Bank (ECB).

The ECB has cut its key borrowing rates by 25 basis points (bps), as expected, pushed the Deposit Facility Rate and Main Refinancing Operations Rate lower to 2.25% and 2.4%, respectively. This is the sixth straight interest rate cut by the ECB in a row and the seventh time since June, when the central bank started unwinding the restrictive monetary policy stance.

It appears that the ECB has changed its stance from “accommodative” to “neutral” as it omitted to use the phrase that interest rates are still restrictive. However, it has posted a grim picture of the Eurozone economic outlook in the face of tariffs imposed by United States (US) President Donald Trump, which are currently paused for 30 days. “Outlook for growth has deteriorated owing to rising trade tensions,” the ECB said in the monetary policy statement.

Meanwhile, ECB President Christine Lagarde has expressed confidence that defence and infrastructure spending will bolster manufacturing activities in her press conference after the policy decision. Lagarde doesn’t expect that the economy has contracted in the first quarter but warns that the economic outlook is “clouded by uncertainty".

Though investors have underpinned the Euro over the Japanese Yen (JPY), it struggles to outperform against its other peers, even as US President Trump has confirmed that trade talks with Japan's economic revitalization minister Ryosei Akazawa went smoothly.

“A Great Honour to have just met with the Japanese Delegation on Trade. Big Progress!” US President Donald Trump wrote in a post on Truth.Social platform on Wednesday.

While Japanese officials are still concerned about the economic outlook due to the passive effects of Trump tariffs on their economy. Earlier in the day, Japanese Finance Minister Shunichi Kato said that he is “deeply concerned” about US tariffs affecting “Japan and the world economy”.