During early Asian trading hours on Friday, the USD/JPY pair encountered selling pressure around 154.15, influenced by a risk-off sentiment and escalating tensions between Israel and Iran. This bolstered safe-haven flows towards the Japanese Yen (JPY). However, the pair’s upside potential in the near term could be constrained by robust US economic data and any hawkish remarks from Federal Reserve (Fed) officials.
Japan’s inflation rate for March, although slowing compared to the previous month, remained above the Bank of Japan‘s (BoJ) 2% target, according to the Statistics Bureau of Japan’s report on Friday. The year-on-year headline Consumer Price Index (CPI) rose by 2.7% YoY in March, following a 2.8% increase in February. Core CPI inflation, excluding fresh food, also moderated to a 2.6% YoY increase in March from 2.8% in February, slightly below market expectations of 2.7%.
BoJ Governor Kazuo Ueda suggested on Thursday that a considerable decline in the Yen could prompt the central bank to raise interest rates again to counteract inflation. Ueda highlighted that currency fluctuations might influence the timing of the next policy adjustment.
BoJ board member Asahi Noguchi echoed similar sentiments, indicating that while the main scenario involves gradual rate hikes, the pace and eventual stabilization level depend on economic data. The uncertainty surrounding the BoJ’s future rate hike trajectory continues to weigh on the JPY.
The escalating conflict between Israel and Iran, coupled with reported Chinese military activity near Taiwan, further fueled geopolitical tensions in the Middle East and Asia. Prime Minister Benjamin Netanyahu’s remarks regarding Israel’s response to Iran’s airstrikes heightened concerns. These geopolitical uncertainties may bolster safe-haven assets like the JPY, potentially impeding the USD/JPY pair’s progress.
In the US, investors are increasingly betting on a delay in interest rate cuts by the Fed until September. Atlanta Fed President Raphael Bostic emphasized the need for the Fed to address high inflation levels, while New York Fed President John Williams reiterated the Fed’s data-dependent approach and lack of urgency in implementing rate cuts.
Amidst these geopolitical and economic factors, the USD/JPY pair faces resistance as market participants weigh conflicting signals and uncertainties in both regions.
