The Euro continues to gain ground against the Japanese Yen for the second consecutive session as the Yen weakens against major currencies. This decline follows a series of messages from US President Donald Trump, threatening steep tariffs on Japanese imports.
Trump proposed a 25% tariff on all Japanese imports starting August 1, citing unfair trade practices. These tariff threats have escalated trade tensions, weakening demand for the Yen and boosting the EUR/JPY amidst a broader risk-off sentiment.
Market Response to Tariff Threats
Since early June, the EUR/JPY has maintained an upward trend, currently trading near 171.80, a level last observed on July 17, 2024. The pair has gained 0.56% on the day, backed by Euro strength and Yen weakness.
The European Union was not mentioned in the latest US tariff threat. While Japan and South Korea were warned of possible tariffs, the EU was not. Negotiations between the US and EU are progressing, with potential changes to tariffs on sensitive sectors, though internal EU disagreements could impact consensus. Failure to reach an agreement may lead to retaliatory tariffs, affecting market sentiment further.
Technically, EUR/JPY retains its bullish trend, supported above the 20-day SMA at 168.61. Momentum indicators remain firmly positive, suggesting continued upward pressure. Initial support lies near 168.60, with resistance at the July high of 172.83.
As we move forward into the next few weeks, what stands out is how external political pressures—not just local economic indicators—are shaping currency valuations in increasingly direct ways. The Yen has seen a drop, largely because of fresh uncertainties around international trade. That decline coincided quite visibly with tariff threats made by the American administration, which have placed additional pressure on Japanese exporters and, in doing so, pulled the Yen downward.
Potential Outcomes and Market Movements
It’s worth re-emphasising that no mention has been made of the European bloc in those recent announcements, creating a gap in tension between regions. While Japan and its neighbours have been openly targeted, talks between Washington and Brussels appear formally ongoing. That said, internal friction within member states may limit progress and trigger retaliatory moves in the event of stalled negotiations. Market expectations are delicately balanced here—anticipating clarity, but also wary of disruption.
From a technical standpoint, price action supports continued interest in Euro purchases relative to the Yen. The pair remains above key short-term averages, most notably the 20-day SMA, which continues to offer support near 168.60. At present levels near 171.80, we are seeing prices approach the resistance area formed back in mid-July. In this environment, momentum indicators such as RSI and MACD still lean into bullish territory, offering no immediate sign of buyer fatigue.
In these conditions, we find it more effective to keep a broader view rather than becoming overly focused on a single support line or resistance cluster. The firmness of buyer pressure cannot be ignored, but recent gains also raise questions about whether the rally can sustain itself without a pause. Should prices stretch beyond the previous peak around 172.83, the door opens to further upside, but not without vigilant monitoring of news related to tariffs and ongoing US-EU commercial talks.
Immediate downside seems limited so long as momentum holds and headline risk doesn’t tilt in favour of the Yen. That could change quickly, however, if either the American administration tempers its rhetoric or if the Japanese government announces countermeasures. The latter would be especially sensitive, as it might stabilise the Yen more rapidly than rate differentials alone would suggest.
We approach the coming sessions alert to oscillations in risk appetite, particularly those triggered by geopolitical setbacks. Public commentary from any of the parties involved has the potential to send the pair swinging. That makes scheduled economic data of lower priority mid-term—it’s watching policy tone and rhetoric shifts that matters most right now.
