Insights 
VT 
EUR/JPY has fallen to around 161.00 following Donald Trump’s notification of potential 50% tariffs on EU imports. This drop marks the lowest point for the currency pair in a month, attributed to weakened Euro demand caused by trade tensions between the US and the EU.
The European Central Bank is likely to decrease interest rates in June, adding further pressure to the Euro. On the other hand, strong inflation data from Japan, with the National CPI climbing to 3.6%, has bolstered the Yen’s strength, outperforming most major currencies, with particularly strong gains against the US Dollar.
Impact Of Us Tariffs On Eu
The threat of increased tariffs from the US on the EU impacts the Euro significantly, given that the EU’s exports to the US in 2024 doubled compared to its imports. This imbalance in trade adds strain during the current tensions.
The Japanese Yen has become more appealing due to market speculation that the Bank of Japan might increase rates in July. This speculation is supported by the recent inflation figures exceeding expectations, indicating a potential move toward tighter monetary policy.
Given the fresh downturn in EUR/JPY, we’ve observed a shift in momentum that is being fed from multiple fronts—none of which point to a quick reversal. With the pair now clinging to 161.00, last seen roughly a month ago, we can identify pressure that stems largely from reduced appetite for the Euro. This isn’t mere fatigue or seasonal rotation—it’s a reaction to tangible trade pressure from overseas. To be blunt, the notion of slapping a 50% tariff on EU goods disrupts comfort levels across Europe’s export-driven sectors.
Trump’s proposal positions the Euro for an extended softness, not purely on retaliatory fears, but because the structural imbalance in trade makes the EU disproportionately exposed. Their exports to the US effectively double what they import. That’s not a ratio that holds up well when tariffs start to loom. The Euro doesn’t enjoy that kind of cushion.
European Central Bank And Japanese Monetary Policy
Overlay that with a European Central Bank that’s staring down monetary loosening, and you have layered downward risk. A June rate cut? That’s near consensus now. Market pricing reflects a high conviction that softening inflation and patchy domestic data are enough for the ECB to act. This only reinforces the down-drift in Euro positioning.
Meanwhile, the Yen sits in a completely different seat. Strong national inflation data doesn’t feel transient—Japan’s core CPI sitting above 3.5% has added credibility to the idea that tighter policy is no longer a long shot. Kuroda’s successor has less reason to hold back now, and we’ve seen inflation surprise to the upside more than once. Markets have started baking in a possible rate hike in July, something unthinkable for years in Japan.
From a speculative angle, implied volatility in EUR/JPY has been climbing, and spreads have begun to widen around topside protection on the Yen—indicative of broader demand for safety-oriented longs. We’re sensing conditions that favour a continuation, rather than a retracement. That means attention should now be turned to levels below 161.00—not as a floor, but as a waypoint.
Options activity seems to favour heightened hedging rather than chasing reversal trades. That tells us one thing: participants are positioning not for snapbacks, but for time-under-compression scenarios.
If we’ve taken one lesson from the past few months, it is that monetary divergence is no longer theoretical. It’s unfolding now, and it’s doing so under a fresh wave of trade tension. What once felt speculative—such as BoJ tightening—might soon become a base case, while further ECB easing is edging closer into view.
From a strategy perspective, crosses tied to interest rate expectation shifts are showing sensitivity to minor data beats or misses, which hints at low tolerance for ambiguity. That should prompt us to adjust to a shorter feedback loop when managing risk—reflexivity is becoming more impacting in this type of flow-driven setting.
If tariff speculation continues to escalate, we could expect Euro selling not just here, but across more USD- and JPY-linked pairs. So for now, we keep eyes on short gamma hedges, especially for near-dated expiries, as demand for downside exposure builds. Tight bid–offer spreads in Yen call structures also suggest positioning is starting to lean quieter short. Sterling crosses might become the next liquidity proxy if the Euro continues to get sold beyond direct US exposure.
We need to treat directional movement as event-driven and stop trying to apply previous frameworks about range-bound pacing. Cross-currency shifts are no longer just about central bank divergences—they now involve headlines tied to possible trade disruption, which injects more velocity into moves that might otherwise have been fading.
Markets don’t respond well to unpredictable policy talk, especially when the trade books are as imbalanced as current EU–US flows appear. The more that rhetoric persists, the more skewed the Euro remains to the downside across several key pairs. We should prepare accordingly.
