EUR/JPY advances to near 161.50 due to improved market sentiment

• EUR/JPY strengthens as US President-elect Donald Trump's economic team considering a gradual increase in import tariffs boosted investor confidence.
• The Japanese Yen faces challenges as traders anticipate the BoJ may postpone rate hikes until April.
• The Euro could struggle due to the increased likelihood of further monetary easing by the ECB.

EUR/JPY pair pauses its three-day winning streak, trading around 161.50 during the Asian session on Tuesday. The pair gains support as the Japanese Yen (JPY) faces pressure amid uncertainty over the timing of the Bank of Japan's (BoJ) next rate hike. Market participants speculate that the BoJ may delay raising rates until April, awaiting confirmation of sustained wage growth during the spring negotiations.

Bank of Japan Deputy Governor Ryozo Himino stated on Tuesday that while the central bank's policy direction favors further rate hikes, it must carefully assess both upside and downside risks domestically and internationally. Himino emphasized the need to monitor short-term economic activity, prices, and financial conditions before taking further action.

Additionally, reports about US President-elect Donald Trump's economic team considering a gradual increase in import tariffs boosted investor confidence, weakening the safe-haven JPY. This, in turn, supported the risk-sensitive Euro, contributing to the EUR/JPY cross's appreciation.

A Bloomberg report on Monday highlighted that Trump's incoming administration is evaluating a phased approach to implementing tariffs, aiming to prevent a sharp rise in inflation while managing trade policy adjustments.

Increasing expectations of further monetary easing by the European Central Bank (ECB) are putting downward pressure on the Euro. Speaking at the Asian Financial Forum (AFF) 2025 on Monday, ECB Chief Economist Philip Lane stated that additional interest rate cuts are likely as the central bank aims to prevent the economy from slowing down excessively.

ECB Governing Council member and Bank of France Governor François Villeroy de Galhau stated on Monday that although the French economy is "slowing down," he does not anticipate a recession. Villeroy added that French economic growth could rebound in 2026 and 2027, following a period of stagnation, with GDP growth estimated at 0% in the fourth quarter of 2024.