EUR/JPY moves sideways near 163.00, upside appears due to improved global risk mood

• EUR/JPY may appreciate further amid improving global risk sentiment after Trump's announcement of milder tariffs on Chinese imports.
• German Chancellor-in-waiting Friedrich Merz warned, "President Trump's policies are increasing the likelihood of a financial crisis sooner than expected."
• Gains in the currency cross pair may be capped as the Japanese Yen continues to benefit from safe-haven demand.

EUR/JPY experiences volatility during European hours on Monday, trading near the 163.00 mark. The Euro finds support as improved global risk sentiment boosts demand for risk-sensitive assets. This optimism followed US President Donald Trump's announcement late Sunday of less severe tariffs on Chinese imports, including semiconductors and electronics.

However, Trump clarified that previously speculated exemptions would not be granted. The affected goods will still face the existing 20% tariffs related to fentanyl rather than the much steeper 145% duties that had been suggested earlier.

Meanwhile, German Chancellor-in-waiting Friedrich Merz expressed concern over Trump's economic strategy in an interview with Handelsblatt on Saturday. "President Trump's policies are increasing the risk that the next financial crisis will hit sooner than expected," he warned. Merz also advocated for a new transatlantic trade pact, proposing "Zero percent tariffs on everything--that would be better for both sides."

Despite the Euro's gains, the upside for EUR/JPY cross may be limited. The Japanese Yen continues to draw support from safe-haven flows amid lingering concerns over the US-China trade tensions. Additionally, optimism around a potential US-Japan trade deal, alongside expectations that the Bank of Japan (BoJ) may continue tightening policy in 2025 due to broadening inflationary pressures, further underpins the Yen.

Japanese Prime Minister Shigeru Ishiba echoed these concerns on Monday, warning that US tariff actions could destabilize the global economic order. Addressing parliament, Ishiba stated, "I am fully aware that what has happened so far has the potential to disrupt the global economic order," while reaffirming Japan's commitment to cooperating with Washington on trade and security.