The Euro is rising against the Japanese Yen for the second day in a row as the Yen weakens against major currencies. This decline follows recent statements from US President Donald Trump, who threatened significant tariffs on Japanese imports. Trump suggested a 25% tariff on all imports from Japan starting August 1, citing unfair trade practices. These tariff threats have increased trade tensions, reducing the Yen’s appeal and pushing the EUR/JPY higher during a period of risk aversion.

Market Reaction to Tariff Threats

Since early June, the EUR/JPY has been on an upward trend, currently sitting around 171.80, a level last seen on July 17, 2024. The pair has risen 0.56% today, supported by a stronger Euro and a weaker Yen. In the latest US tariff threats, the European Union was not mentioned. While Japan and South Korea were warned about possible tariffs, the EU was left out. Ongoing negotiations between the US and EU may lead to changes in tariffs on sensitive sectors; however, disagreements among EU member states could stall progress. If no agreement is reached, retaliatory tariffs may impact market sentiment further. From a technical perspective, EUR/JPY is still bullish, staying above the 20-day SMA at 168.61. Momentum indicators are strong, suggesting continued upward movement. Initial support is around 168.60, with resistance at the July high of 172.83. As we head into the next few weeks, it is clear that external political pressures—rather than just local economic indicators—are influencing currency values. The Yen has dropped mainly due to new uncertainties around international trade, coinciding noticeably with the US tariff threats, which have increased pressure on Japanese exporters and pulled the Yen lower.

Possible Outcomes and Market Movements

It’s important to highlight that the recent announcements did not mention the European bloc, creating a gap in regional tensions. While Japan and its neighbors have been targeted, discussions between Washington and Brussels seem to be ongoing. However, internal issues within member states might slow progress and lead to retaliatory steps if negotiations falter. Market expectations are currently delicate; there is anticipation for clarity while also being cautious of potential disruptions. From a technical viewpoint, price movements suggest continued interest in buying Euros against the Yen. The pair remains above important short-term averages, especially the 20-day SMA, which supports levels near 168.60. With the current price around 171.80, we are nearing resistance that formed in mid-July. Momentum indicators like the RSI and MACD still indicate a bullish trend, showing no signs of buying fatigue. In these circumstances, maintaining a broader perspective is more effective than fixating on a single support line or resistance level. The strength of buying pressure is significant, but recent gains raise questions about the sustainability of the rally without a pause. If prices exceed the previous peak of 172.83, further gains may be possible, but it’s essential to monitor news related to tariffs and US-EU talks closely. Immediate declines seem limited as long as momentum remains strong and the risk of negative headlines doesn’t favor the Yen. However, things could change quickly if the US administration tones down its rhetoric or if the Japanese government responds with countermeasures. The latter could stabilize the Yen more rapidly than expected. As we look ahead, we should be vigilant about shifts in risk appetite, especially those driven by geopolitical events. Comments from any involved parties could impact the pair significantly. Therefore, while scheduled economic data may take a back seat for now, paying attention to policy directions and rhetoric shifts is crucial. Create your live VT Markets account and start trading now.

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