EUR/JPY holds gains near 176.50 due to weakening safe-haven demand

EUR/JPY recovers its losses registered in the previous session, trading around 176.50 during the Asian hours on Monday. The currency cross appreciates as the Japanese Yen (JPY) struggles amid dampening safe-haven demand, driven by easing US-China trade tensions.

President Trump posted on Truth Social on Sunday, noting that China’s economy “will be fine” and that the US wants to “help China, not hurt it.” On Sunday, Trump said that there’s no need to meet China’s President Xi Jinping at the upcoming South Korea summit and threatened to impose 100% tariffs on Chinese imports. China also responded by warning to retaliate if Trump fails to back down on his threat to impose 100% tariffs on Chinese imports.

The Japanese Yen (JPY) could come under pressure as Japan’s incoming Prime Minister, Sanae Takaichi, is expected to pursue higher fiscal spending while maintaining a loose monetary policy. The political concerns increase as Japan’s Komeito party announced on Friday that it is leaving the ruling coalition, delivering a setback to Takaichi’s bid for the premiership and potentially weakening the Liberal Democratic Party’s hold on power in the world’s fourth-largest economy.

The EUR/JPY cross appreciates as the Euro (EUR) receives support from easing political tensions in France, where President Emmanuel Macron is set to appoint a new prime minister after Sebastien Lecornu’s resignation. Investors’ sentiment improved as Lecornu indicated that dissolving parliament and thus holding snap elections was unlikely.

The European Central Bank’s (ECB) September meeting accounts showed that policymakers broadly agreed the current policy stance remains consistent with the 2% medium-term inflation target. ECB members concurred that current interest rates are sufficiently strong to handle potential shocks amid two-sided inflation risks.