The EUR/JPY pair paused its three-day losing streak, trading around 156.70 during the Asian session on Monday. The currency cross found support amid concerns that Japan could eventually be targeted by former US President Donald Trump’s proposed trade tariffs.
Speaking aboard Air Force One on Sunday, Trump announced plans to impose a 25% tariff on all steel and aluminum imports, though he did not specify which countries would be affected. He also reiterated that additional reciprocal tariffs would be unveiled midweek and swiftly implemented, mirroring the tariff rates set by each nation, according to Reuters.
During a press conference on Friday with Japanese Prime Minister Shigeru Ishiba, Trump reaffirmed his intention to address the $65 billion annual US trade deficit with Japan. He also highlighted Japan’s commitment to doubling its defense spending by 2027 compared to his first term and increasing imports of American liquefied natural gas.
The Japanese yen (JPY) could strengthen amid rising expectations that the Bank of Japan (BoJ) may raise interest rates again this year. A surge in Japanese government bond (JGB) yields could further bolster demand for the lower-yielding yen.
However, the EUR/JPY’s upside may be capped by concerns over potential deflationary pressures in the Eurozone. The prospect of US tariffs on European goods has intensified expectations of deeper interest rate cuts by the European Central Bank (ECB), with markets now pricing in a reduction of the deposit rate to 1.87% by December.
In response to Trump’s tariff plans, German Chancellor Olaf Scholz warned that the European Union (EU) could retaliate “within an hour” if the US imposes the proposed levies. Meanwhile, Bernd Lange, head of the European Parliament’s trade committee, suggested that the EU may consider lowering its 10% import tax on vehicles to a rate closer to the 2.5% tariff set by the US to avoid escalating trade tensions.
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