EUR/JPY breaks below 162.00 as safe-haven demand lifts Yen amid trade uncertainty
- EUR/JPY weakens as the Japanese Yen gains strength, driven by investor demand for safe-haven assets amid escalating global trade tensions.
- US Treasury Secretary Scott Bessent noted that formal trade negotiations with Japan have yet to commence.
- Japanese Finance Minister Katsunobu Kato criticized US tariffs at the G7 summit, describing them as “highly disappointing.”
EUR/JPY retraces its recent gains registered in the previous session, trading around 161.90 during the Asian hours on Thursday. The currency cross depreciates as the Japanese Yen (JPY) strengthens, as investors flock to safe-haven assets amid renewed concerns over global trade tensions.
US Treasury Secretary Scott Bessent downplayed hopes for progress on US-Japan trade negotiations, stating that no formal trade talks have begun and no unilateral tariff cuts have been proposed. Adding to the cautious sentiment, the US reportedly told Japan’s trade delegation that Tokyo would not receive preferential treatment under the current tariff framework, despite calls for a policy review.
The Bank of Japan’s (BoJ) latest Financial System Report, released Wednesday, noted overall financial stability but emphasized the need for vigilance due to risks tied to market fluctuations, especially those related to stockholdings by Japanese banks.
Japanese Finance Minister Katsunobu Kato criticized US tariffs at the G7 meeting, calling them “highly disappointing.” Kato emphasized the importance of a free trade regime and stated that exchange rates should be determined by markets, warning that excessive forex moves could harm the economy.
Meanwhile, European Central Bank (ECB) President Christine Lagarde expressed concern over the US tariff hike on EU goods—from 3% to 13%, noting its negative impact on the European outlook. ECB Governing Council member Madis Muller also suggested that interest rate cuts may be necessary if trade tensions further weigh on growth. These dovish comments could pressure the Euro in the short term.
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.