EUR/JPY holds losses near 161.00 due to heightened global risk aversion

• EUR/JPY faces challenges due to risk-off mood following US President-elect Donald Trump's announcement of import tariffs.
• The Japanese Yen may struggle due to uncertainty surrounding the BoJ's future rate hikes.
• The ECB is widely anticipated to implement a 25 basis point rate cut in December.

EUR/JPY remains in negative territory despite trimming intraday losses, trading near 161.20 during European hours on Tuesday. The EUR/JPY cross faces headwinds as the safe-haven Japanese Yen (JPY) holds firm, bolstered by heightened global risk aversion following US President-elect Donald Trump's renewed tariff threats on China, Mexico, and Canada.

These developments have dampened market sentiment, adding downward pressure on European economies and weighing on the risk-sensitive Euro. As a result, the EUR/JPY cross struggles to gain traction amid a challenging external environment.

However, the Japanese Yen (JPY) may struggle due to uncertainty surrounding the Bank of Japan's (BoJ) future rate hikes. BoJ Governor Kazuo Ueda has hinted at the possibility of another interest rate hike as early as December. Traders are focused on upcoming Tokyo Consumer Price Index data for November, which is seen as a leading indicator of nationwide price trends.

In the Eurozone, markets have fully priced in a 25-basis-point (bps) rate cut by the European Central Bank (ECB) in December, with the probability of a larger 50 bps cut rising to 58%. This underscores growing market pessimism about the region's economic outlook.

Such expectations weigh heavily on the Euro, further limiting the upside potential of the EUR/JPY cross, as concerns about monetary easing and economic weakness continue to dominate market sentiment.

The downside risks persist for the EUR/JPY cross as the Euro also faces pressure from growing concerns about the Eurozone's economic outlook. These concerns are fueled by uncertainties surrounding political instability in Germany and France.