- EUR/JPY depreciates as the Japanese Yen trims its daily losses.
- Japanese Finance Minister Kato said that he will appropriately conduct fiscal policy to attract domestic investors.
- The ECB revised down its inflation projections for 2025 and 2026, signaling that its current easing cycle is nearing conclusion.
EUR/JPY pulled back from a fresh seven-month high of 165.45, trading around 165.10 during the Asian hours on Tuesday. However, the currency cross gained ground as the safe-haven Japanese Yen (JPY) received downward pressure amid a cooling down in the United States’ (US) latest broad tariff tensions with China.
US and Chinese advisors are set to continue meeting on a second day on Tuesday at 10.00 a.m. in London. Trade talks will continue as the world’s two largest economies look to ease tensions over shipments of technology and rare earth elements, per Bloomberg. Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick both noted positive comments about the meeting held on Monday.
On Monday, data showed that Japan's economy contracted at a slower pace than initially estimated, by 0.2% annualized during the first quarter of 2025, reaffirming market bets that the Bank of Japan (BoJ) will continue normalizing rates amid sticky inflation.
Japanese Finance Minister Katsunobu Kato said on Tuesday that he will appropriately conduct fiscal policy to prompt domestic investors to buy more Japanese Government Bond holdings. Kato also emphasized that the government to make efforts to ensure a variety of investors buy and own government bonds, at a time when the BoJ tapers its bond purchases.
In the Eurozone, the European Central Bank (ECB) delivered a 25 basis point rate cut last week, bringing borrowing costs to their lowest since November 2022. Moreover, the central bank also revised down its inflation projections for 2025 and 2026, indicating that it is nearing the end of its current easing cycle.
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.
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