- EUR/JPY weakens to near 161.65 in Tuesday’s Asian session, losing 0.33% on the day.
- The rising safe-haven demands support the Japanese Yen.
- The preliminary reading of the April HCOB PMI from the Eurozone, Germany will take center stage on Wednesday.
The EUR/JPY cross attracts some sellers to around 161.65 during the early European session on Tuesday. The Japanese Yen (JPY) strengthens against the Euro (EUR) amid concerns over US President Donald Trump's tariffs and the escalating US-China trade war.
Persistent trade-related uncertainties triggered by Trump and his fresh attack on Federal Reserve (Fed) Chair Jerome Powell rattled markets. This, in turn, boosts the safe-haven flows, benefiting the JPY in the near term. White House economic adviser Kevin Hassett said on Friday that Trump and his administration were continuing to study whether they could fire the Fed’s Powell.
Additionally, the rising bets that the Bank of Japan (BoJ) will continue raising interest rates might contribute to the JPY’s upside and act as a headwind for EUR/JPY. BoJ Governor Kazuo Ueda said last week that Japan's real interest rates remain very low and that the BoJ is expected to keep raising interest rates if the economy and prices move in line with projections. The view was further echoed by BoJ board member Junko Nagakawa.
On the Euro front, the dovish stance of the European Central Bank (ECB) might weigh on the shared currency. The ECB decided to cut its main interest rate by a quarter of a percentage point to 2.25% at its April meeting last week. During the press conference, ECB President Christine Lagarde said that US tariffs on EU goods, which had increased from an average of 3% to 13%, were already harming the outlook for the European economy.
Investors will keep an eye on the preliminary reading of the HCOB Purchasing Managers Index (PMI) from the Eurozone and Germany for April, which is due later on Wednesday. If the reports show a stronger-than-expected outcome, this could help limit the EUR’s losses.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
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