USD/JPY cautious on the way to further growth | 19 4月 2024

USDJPY:

The USD/JPY is attracting some sellers around the 154.15 level in early Asian trading on Friday. Risk-off sentiment and rising tensions between Israel and Iran are boosting safe-haven flows, favouring the Japanese Yen (JPY). However, strong US economic data and any hawkish comments from Federal Reserve (Fed) officials may limit the pair's near-term gains. The Bank of Japan (BoJ) meets next week and is expected to revise its inflation forecast for this fiscal year in its quarterly report.

Japan's inflation slowed in March but remains above the central bank's 2% target, Statistics Japan said on Friday. The core consumer price index (CPI) rose 2.7 percent year-on-year in March, following a 2.8 percent increase in February. Core CPI inflation, which excludes fresh food, rose 2.6 per cent year-on-year in March, compared with a 2.8 per cent increase in February, below the market consensus forecast of 2.7 per cent.

Bank of Japan Governor Kazuo Ueda said on Thursday that the central bank may raise interest rates again if the yen's depreciation significantly increases inflation. Ueda added that the impact of currency movements could influence the timing of the next policy change.

Meanwhile, Bank of Japan board member Asahi Noguchi said on Thursday that "the main scenario is that future rate hikes are likely to be slow, but this depends on economic data". Noguchi noted that "the focus now is on the pace at which the rate will be adjusted and at what level it will eventually stabilise". Uncertainty over the Bank of Japan's future rate hike path continues to weigh on the Yen.

Nevertheless, the conflict between Israel and Iran has raised fears of war in the Middle East. On Friday, Prime Minister Benjamin Netanyahu said Israel would "make its own decisions" in response to Iran's unprecedented air strikes over the weekend, according to CNN. In addition, Taiwan's defence ministry said four Chinese warplanes had crossed the median line of the Taiwan Strait in the past 24 hours. Escalating geopolitical tensions in the Middle East and Asia could boost safe-haven assets such as the Yen and create headwinds for the USD/JPY pair.

As for the Dollar, investors are increasing bets that the Federal Reserve will delay interest rate cuts until September. Atlanta Fed President Raphael Bostic said that US inflation is too high and the Fed still has work to do, while New York Fed President John Williams stressed that the Fed is data dependent and does not feel the urgency to cut rates.

Trading recommendation: Trading predominantly on Buy from the current price level.

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