Iran has vowed to retaliate against Israeli attack on its embassy in Syria, raising the risk of a further escalation of geopolitical tensions in the Middle East and boosting the safe-haven Japanese Yen.
Bank of Japan Governor Kazuo Ueda reportedly said on Friday that the central bank could respond with monetary policy if FX moves have an impact on the wage-inflation cycle in a way that is hard to ignore.
Ueda added that the chance of sustainably, stably achieving BoJ’s 2% inflation target is in sight and is likely to keep heightening as this year's pay raises in annual wage negotiations could push up prices.
Former top Japanese currency official Tatsuo Yamazaki said on Thursday that authorities will likely intervene in the currency market if the JPY breaks out of the range and weakens beyond 152 per dollar.
Japan's Finance Minister Shunichi Suzuki reiterated that he is closely watching foreign exchange moves with a high sense of urgency and won't rule out any options to deal with excessive FX volatility.
Data released earlier today showed that Japanese household spending fell 0.5% in February from a year earlier, down for the 12th straight month, though better than estimates for a 3.0% decline.
The US Department of Labor reported on Thursday that the number of Americans applying for unemployment insurance increased to 221K in the week ending March 30 against 214K expected.
This pointed to signs of cooling in the labor market and reinforced market expectations that the Federal Reserve will start cutting interest rates in June, dragging the US Dollar to a two-week low.
Meanwhile, Minneapolis Fed President Neel Kashkari said that he penciled in two interest rate cuts this year and that rate cuts might not be required if inflation continues to move sideways.
Adding to this, Richmond Fed President Thomas Barkin noted that he was open to interest rate cuts once it is clear progress on inflation will be sustained and applied more broadly in the economy.
The hawkish outlook keeps the US Treasury bond yields elevated, which allowed the USD to stage a late recovery, though the momentum faded rather quickly during the Asian session on Friday.
Investors now look forward to the closely-watched US monthly jobs data, popularly known as the Nonfarm Payrolls (NFP) report, for cues about the Fed's rate cut path and some meaningful impetus.
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