EUR/JPY rises above 161.50 on a minor increase in global risk sentiment.
- The EUR/JPY gains as the Japanese yen declines amid shifting safe-haven flows and an improvement in global risk sentiment.
- To assist workers deal with inflation, Japan’s top corporations are planning significant wage increases for the third year in a row.
- The euro rises as the Franziska Brantner-led German Green Party considers supporting a defense spending pact.
EUR/JPY continues its upward momentum for the second consecutive day, trading around 161.60 during Wednesday’s Asian session. The pair strengthens as the Japanese Yen (JPY) weakens amid concerns that US President Donald Trump may introduce new tariffs on Japan.
Furthermore, the JPY is under pressure due to shifting safe-haven flows and a little increase in global risk sentiment. Market confidence is boosted after President Trump reversed his decision to quadruple tariffs on Canadian steel and aluminum to 50%, which he announced late Tuesday. However, the White House confirmed to Reuters that a 25% duty on all imported steel and aluminum will remain in effect on Wednesday, affecting key US trading partners such as Canada and Mexico.
Despite this, the JPY’s downside may be mitigated as Japanese government bond (JGB) rates recently rose to a multi-year high of 1.5712 amid speculation of further rate hikes by the Bank of Japan (BoJ). Governor Ueda of the Bank of Japan indicated that it is natural for long-term interest rates to move in response to market expectations for future short-term rates, highlighting the importance of open communication about policy actions. The BoJ, which boosted interest rates to 0.5% in late January, will conduct its next policy meeting next week.
The EUR/JPY cross rises as the Euro (EUR) outperforms its peers, boosted by expectations that the Franziska Brantner-led German Green Party will back the adoption of a defense funding plan scheduled for consideration on Thursday. Earlier, German leaders agreed to loosen the borrowing cap, known as the “debt brake,” and create a €500 billion infrastructure fund to boost defense expenditure and spur economic growth.
Germany’s fiscal plans have also prompted traders to reassess the European Central Bank’s (ECB) plans to drop interest rates twice more by the summer. ECB policymaker and Bank of Finland Governor Olli Rehn stated that forecasts and core inflation indicators indicate that inflation is on pace to meet the 2% objective.