• AUD/JPY rises as the Australian Dollar rebounds despite escalating Middle East tensions.
• Israeli forces struck Hezbollah-held areas in Beirut after missiles were fired from Lebanon, prompting evacuation orders for nearby towns.
• BoJ Deputy Governor Ryozo Himino said rates should rise gradually if economic and inflation forecasts are met.

AUD/JPY pares daily losses, trading around 111.00 during the Asian hours on Monday. The currency cross appreciates as the Australian Dollar recovers recent losses despite the increased safe-haven demand amid escalating Middle East tensions.

Israel launched heavy strikes on Beirut after Hezbollah fired missiles across the border early Monday, following coordinated US-Israel attacks on Iran over the weekend that reportedly killed Iran’s Supreme Leader Ayatollah Ali Khamenei. The Israeli military also issued evacuation orders for several Lebanese towns.

US President Donald Trump said hundreds of targets were hit, including Revolutionary Guard facilities, air defense systems, nine vessels, and naval infrastructure. He added that military operations will continue until all objectives are achieved.

Australia’s S&P Global Manufacturing Purchasing Managers’ Index (PMI) was revised lower to 51.0 in February from 52.3, the weakest reading in four months. Meanwhile, the TD-MI Inflation Gauge declined 0.2% month-over-month (MoM), reversing January’s 0.2% increase and marking the first drop since last August.

The AUD/JPY cross may come under pressure as the Japanese Yen (JPY) strengthens amid rising safe-haven demand amid the Middle East crisis. The JPY could gain further support from hawkish comments by Bank of Japan (BoJ) Deputy Governor Ryozo Himino, who said on Monday that although policy remains “somewhat accommodative,” the central bank should gradually raise interest rates if its economic and inflation forecasts are realized.