EUR/JPY holds positive ground near 160.00 amid tariff jitters

• EUR/JPY gains ground to around 159.95 in Tuesday’s early European session, adding 0.42% on the day. 
• Trump paused new tariffs on Mexico and Canada for one month. 
• The prospect of a BoJ rate hike might cap the downside for JPY. 

The EUR/JPY cross edges higher to near 159.95 during the early European session on Tuesday.  US President Donald Trump's decision to delay plans to impose tariffs on Canada and Mexico boosts investors' confidence, which drags the safe-haven currency like the Japanese Yen (JPY) lower. 

Late Monday, Trump said that he will pause the 25% tariffs on goods entering the United States from Mexico and Canada for one month. The risk-on sentiment lifts the Euro (EUR) from monthly lows against the JPY. 

On Tuesday, China's finance ministry announced a package of tariffs on a range of US products, including crude oil, farm equipment, and some autos in an immediate response to a 10% tariff on Chinese imports announced by US President Donald Trump. Any signs of uncertainty or escalating trade war tension could boost the safe-haven flows, benefiting the JPY. 

Furthermore, Tokyo core CPI hit 2.5%, marking the fastest annual pace in nearly a year, well exceeding the Bank of Japan’s (BoJ) 2% target and keeping alive market expectations for further interest rate hikes. This, in turn, might help limit the JPY’s losses. 

"Just looking at inflation, the BOJ might see scope to raise interest rates once or twice this year. But much depends on whether consumption and the broader economy hold up,” said Yoshiki Shinke, senior executive economist at Dai-ichi Life Research Institute.