EUR/JPY Surges on Trade War Shocks: Trump Hits Japan with Tariffs, EU Eyes Deal with U.S.
Currency chaos unfolds as Euro gains strength, Yen plunges, and global markets brace for ripple effects
As markets brace for renewed trade turbulence, EUR/JPY has climbed to around 171.10, its highest point in nearly a year, thanks to hopes of a breakthrough EU‑US trade deal and the shock announcement of 25% tariffs on Japanese imports by former President Trump, set to take effect August 1, 2025.
The implications ripple across sectors: export‑reliant Japan faces mounting pressure, with the Nikkei 225 index already retreating nearly 1% due to yen weakness. Meanwhile, the Euro is drawing strength from encouraging data—a 1.2% rebound in German industrial output and growing investor confidence in Europe.
This currency dynamic is unfolding as Trump threatens to inflate tariffs even further if Japan retaliates—and hints at similar moves targeting other countries, including those aligned with BRICS.
Yen dives as Euro rallies: technical signals point to more movement ahead
Wake-up calls from global FX desks confirm that the Japanese Yen is among the weakest G10 currencies, down nearly 1% against the dollar, while EUR/JPY’s break above the 78.6% Fibonacci retracement level from last year’s lows signals a technical breakout.
With a bullish slope in the 10‑ and 20‑day moving averages, analysts caution that overbought signals (RSI above 73) suggest some volatility ahead. Immediate resistance lies around 171.30, followed by 173.00, with support near 168.30.
Brussels races to finalize a deal while Tokyo stands alone under pressure
EU leaders are racing against the July 9 deadline to strike a trade pact with the U.S.—hoping to avert a proposed 50% tariff hike. Ursula von der Leyen and Trump reportedly shared a “good exchange,” raising optimism for a deal that would keep tariffs at a manageable 10%.
Yet Tokyo remains isolated. Japanese negotiators, having already weathered steel and auto tariffs earlier this summer, now face the challenge of halting Trump’s 25% threats on a broader array of exports. Trump’s new levy target includes cars, electronics, and even agricultural products like rice—areas where Japan had previously expressed frustration at U.S. trade inflexibility.
Market reactions intensify across currencies, yields, and stocks
The tariff shock has propelled U.S. Treasury yields upward, nudging the 10‑year yield to 4.33%, while the U.S. Dollar Index (DXY) strengthened slightly—a classic shift to safety. Asian equities slid about 0.6%, particularly in Japan and South Korea, where export exposure is highest.
In Europe, broad indices like the Stoxx 600 held ground, with Germany’s DAX climbing 0.4%, France’s CAC 40 nudging down 0.1%, and the U.K.’s FTSE 100 dipping 0.2% as investors awaited clarity on EU‑US and Asia‑US trade paths.
Countdown begins to key dates that could redefine global trade flows
Markets are closely watching both Tokyo and Brussels. Japan’s ability to negotiate exemptions could relieve pressure on the Yen and Asian equities, while a positive EU‑US deal may bring relief across global risk assets. But if no agreement materializes by July 9, expect a wave of volatility—tariffs on Europe, Japan, and possibly BRICS nations loom.
EUR/JPY at 171.10, USD/JPY with yen weakness, rising Treasury yields, and mixed equity performance all form the undercurrent of this evolving trade narrative.
Traders prepare for volatility as central banks step into the spotlight
With currencies and commodities reacting to trade policy shifts, macro investors may find opportunities in FX carry trades, hedged positions, and equity pairs sensitive to trade dynamics. Central bank communications—especially from the Federal Reserve, ECB, and BoJ—could add another layer, influencing bond yields and further complicating the picture.
All eyes are now on two critical dates: July 9, the EU‑US deal deadline, and August 1, when Japan’s new tariffs take effect. The outcome will shape Euro‑Yen direction, equity market trends, and global confidence in trade diplomacy well into 2026.