EUR/JPY fell 0.15% to about 182.40 in Asian trading on Monday. The Japanese Yen gained safe-haven demand during a holiday in Japan, while US trade policy remained uncertain.
Japan’s markets are closed on Monday for The Emperor’s Birthday. Uncertainty followed a Supreme Court ruling against tariffs imposed by President Donald Trump under the International Emergency Economic Powers Act (IEEPA).
Trade Policy Uncertainty Drives Safe Haven Flows
Trump criticised the Supreme Court decision. He also announced a 15% increase in import duty globally.
In Japan, January inflation data weakened expectations for a near-term Bank of Japan rate rise. Headline CPI rose 1.5% year on year, down from 2.1% in December, while CPI excluding fresh food was 2.0%, versus 2.4% previously.
In Europe, the European Parliament’s trade chief said the EU will propose freezing ratification of a trade deal with the US. The move would remain in place until the EU receives details on US trade policy, according to Bloomberg.
In the euro area, February preliminary HCOB PMI data improved. The Composite PMI rose to 51.9, above estimates of 51.5 and January’s 51.3.
Rate Differentials Remain The Main Driver
We remember this time last year when the EUR/JPY pair saw pressure due to sudden US trade policy uncertainty. The announcement of a global 15% import duty created a classic flight-to-safety, briefly strengthening the Japanese Yen. This happened despite Japan’s own holiday-thinned trading.
However, that safe-haven bid for the Yen proved temporary as the fundamental picture of interest rate differentials took over again. The Bank of Japan has remained cautious, with recent January core CPI data for Tokyo coming in at 1.8%, still below the sustainable target needed for aggressive policy tightening. This has kept the Yen fundamentally weak against higher-yielding currencies.
On the Euro side, the optimism from last year’s upbeat PMI readings has moderated, as the trade friction did weigh on sentiment throughout 2025. The latest flash estimate for the HCOB Composite PMI is sitting at 50.2, indicating only marginal growth and a significant cooling from the 51.9 level we saw a year ago. This suggests the European Central Bank may be closer to cutting rates than hiking them.
For traders now, this means the primary driver for the EUR/JPY is the wide interest rate differential, not temporary risk events. The strategy should focus on plays that benefit from the carry trade, such as being long the pair through futures or CFDs. Volatility has subsided from last year’s peaks, making options strategies like selling out-of-the-money JPY calls attractive to collect premium.
