EUR/JPY climbs as Yen weakens on trade optimism, Eurozone stability

• EUR/JPY climbs as investors unwind safe-haven positions, weighing down on the Yen.
• Optimism over trade negotiations between the US and China eases demand for the Japanese currency.
• The Euro benefits from short-term political stability in France and cautious comments from the European Central Bank.

EUR/JPY trades around 176.20 on Tuesday at the time of writing, advancing by 0.40% for the day as investors rotate out of defensive assets amid improving market sentiment. The Japanese Yen (JPY) loses ground across the board, pressured by easing risk aversion following signs of progress in trade discussions between the United States (US) and China.

US President Donald Trump confirmed he will meet Chinese Premier Xi Jinping next week to discuss a "fair trade deal," fueling optimism that the recent tensions could de-escalate and support global growth prospects. The shift in sentiment has weakened the demand for safe-haven currencies such as the Japanese Yen, allowing the Euro (EUR) to recover part of its recent losses.

At the same time, expectations of continued monetary policy normalization by the Bank of Japan (BoJ) have moderated. Recent market signals suggest that policymakers are in no rush to tighten further, as inflation remains below target. This perception has limited the Japanese Yen's appeal, despite the broader uncertainty surrounding Japan's new government led by Prime Minister Sanae Takaichi.

In the Eurozone, the common currency finds moderate support from relative political stability in France after Prime Minister Sébastien Lecornu survived a no-confidence vote last week. However, structural fiscal challenges persist, keeping the Euro's upside in check. Meanwhile, European Central Bank (ECB) President Christine Lagarde's recent remarks confirm a cautious stance, emphasizing that current interest rates will likely be maintained in the near term as inflation pressures gradually ease.

Overall, the combination of a softer JPY and resilient Eurozone sentiment supports EUR/JPY's upward move, though traders remain alert to upcoming speeches from ECB officials and Japan's September Consumer Price Index (CPI) release later this week for fresh direction.