USD/JPY drops below 154.20 amid Middle East war fears

• USD/JPY faces some selling pressure near 154.15 in Friday’s early Asian session. 
• The escalating geopolitical tension in the Middle East and Asia boosts the safe-haven JPY. 
• Investors raise their bets that the US Fed will delay interest rate cuts to September.

The USD/JPY pair attracts some sellers around 154.15 on Friday during the early Asian trading hours. The risk-off mood and rising tension between Israel and Iran boost the safe-haven flows, benefiting the Japanese Yen (JPY). However, the robust US economic data and any hawkish comments from the Federal Reserve (Fed) officials might cap the pair upside in the near term. The Bank of Japan (BoJ) will hold a meeting next week and it is expected to revise up its inflation forecast for this fiscal year in a quarterly report.
 
Japan’s inflation rate slowed in March, but remains above the central bank's 2% target, the Statistics Bureau of Japan reported on Friday. The year-on-year headline Consumer Price Index (CPI) for March climbed 2.7% YoY, followed by a 2.8% February increase. The Core CPI inflation, which excludes fresh food, rose 2.6% YoY in March from an increase of 2.8% in February, below the market consensus of 2.7%. 

On Thursday, BoJ Governor Kazuo Ueda said that the Japanese central bank may raise interest rates again if the Yen's declines considerably increase inflation. Ueda added that the impact of currency moves might affect the timing of the next policy shift. 

Meanwhile, BoJ board member Asahi Noguchi said on Thursday that the “main scenario is that future rate hikes are likely to be slow, but that depends on economic data. Noguchi noted that the “focus now is on the pace at which the policy rate will be adjusted and at what level it will eventually stabilize.” The uncertainty surrounding the BoJ’s future rate hike path remains weighing on the JPY. 

Nonetheless, the conflict between Israel and Iran triggered Middle East war fears. On Friday, Prime Minister Benjamin Netanyahu said Israel will make its "own decisions" when responding to Iran's unprecedented weekend airstrikes, per CNN. Additionally, Taiwan’s Defense Ministry stated that four Chinese military planes crossed the Taiwan Strait median line in the past 24 hours. The escalating geopolitical tension in the Middle East and Asia might boost safe-haven assets like the JPY and create a headwind for the USD/JPY pair. 

On the USD’s front, investors raise their bets that the US Fed will delay interest rate cuts to September. Atlanta Fed President Raphael Bostic said that US inflation is too high and the Fed still has a way to go on inflation, while New York Fed President John Williams emphasized that the Fed is data dependent and he doesn't feel an urgency to cut rates.