USD/JPY Falls Below 154.20 on Concerns of a Conflict in the Middle East

A few sellers enter the USD/JPY pair at 154.15 on Friday during the early hours of Asian trading. The Japanese Yen gains from the risk-averse sentiment and escalating tensions between Israel and Iran. Nonetheless, the pair's near-term ascent could be capped in the near future by hawkish remarks from Federal Reserve (Fed) officials and robust US economic data. Following a meeting next week, the Bank of Japan (BoJ) is anticipated to release a quarterly report in which it will increase its inflation forecast for the current fiscal year.

Japan's inflation rate slowed in March, but remains above the 2% target set by the central bank, according to data released by the Statistics Bureau of Japan on Friday. The headline Consumer Price Index (CPI) increased 2.7% year-over-year in March, subsequent to a 2.8% increase in February. Excluding fresh food, the Core CPI inflation rate increased 2.6% year-over-year in March, following a 2.8% increase in February; this figure was below the market consensus of 2.7%.

Governor Kazuo Ueda of the Bank of Japan stated on Thursday that the Japanese central bank may increase interest rates once more if the Yen's declines significantly exacerbate inflation. Currency fluctuations, according to Ueda, could potentially influence the timing of the subsequent policy adjustment.

Asahi Noguchi, a member of the BoJ board, stated on Thursday that "the most probable outcome is that forthcoming rate hikes will be gradual; however, this is contingent on economic data." "At this time, the emphasis is on the rate of adjustment of the policy rate and the level at which it will ultimately stabilize," stated Noguchi. Uncertainty regarding the trajectory of future rate hikes by the Bank of Japan continues to weigh on the JPY.

However, the Israel-Iran conflict incited concerns of a Middle Eastern war. CNN reports that on Friday, Israeli Prime Minister Benjamin Netanyahu stated that the country would "make its own decisions" regarding its response to Iran's unprecedented weekend airstrikes. Furthermore, within the previous twenty-four hours, four Chinese military aircraft traversed the Taiwan Strait median line, according to the Defense Ministry of Taiwan. Increasing geopolitical tension in Asia and the Middle East could provide support for safe-haven assets such as the JPY and act as a headwind for the USD/JPY pair.

Amidst the USD, investors increase their wagers on the postponement of interest rate decreases by the US Federal Reserve until September. New York Fed President John Williams emphasized that the Fed is data-driven and that he does not feel compelled to reduce interest rates, whereas Atlanta Fed President Raphael Bostic stated that US inflation is too high and that the Fed still has work to do on inflation.