EUR/JPY extends the rally to near 171.50 amid Japan trade uncertainty
- EUR/JPY attracts some buyers near 171.45 in Tuesday’s early European session, up 0.27% on the day.
- Hope that the EU will conclude a framework trade deal with the US this week to support the Euro.
- Trump said that he plans to impose 25% tariffs on goods from Japan, effective August 1.
The EUR/JPY cross extends its upside to around 171.45 during the early European session on Tuesday. The Euro (EUR) strengthens against the Japanese Yen (JPY) amid hopes for the United States-European Union trade deals. The European Central Bank (ECB) policymaker Joachim Nagel is set to speak later on Tuesday.
The EU rushes to conclude a preliminary trade agreement with the US this week, allowing it to lock in a 10% tariff rate beyond the August 1 deadline while they negotiate a permanent deal. Traders also react to reports that the US proposed an offer that would maintain the 10% baseline tariffs but would exempt sensitive industries such as airplanes and spirits. This, in turn, provides some support to the shared currency in the near term.
The Japanese currency tumbles to a one-year trough against the Euro after US President Donald Trump said that he plans to impose 25% tariffs on goods from Japan in the latest development of his chaotic trade war. Japanese Prime Minister Shigeru Ishiba said early Tuesday that Japan hasn’t been able to reach an agreement with the US because the country kept defending what needs to be defended.
"The Japanese government is expected to continue tariff negotiations, but with the Upper House election scheduled for July 20, the bar for reaching an agreement within the month appears high," said economists at Morgan Stanley MUFG Securities.
Meanwhile, there is still a lot of uncertainty about the global economy. Any signs of renewed global trade tensions or tariff uncertainty could boost the safe-haven flows, supporting the JPY.
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.