Anna 
The Japanese yen exhibited strength against the dollar for the second consecutive day, buoyed by data revealing sustained inflation in Tokyo above the Bank of Japan’s 2% target. This development has heightened expectations that the central bank may initiate a tapering of its substantial stimulus program at some point this year, contributing to the yen’s upswing. However, the Japanese government’s post-New Year’s Day earthquake stimulus measures may have momentarily delayed the Bank of Japan’s intentions to shift away from its ultra-dovish stance. The yen’s further gains were constrained by a robust performance in equity markets, fostering a preference for riskier assets.
Conversely, the dollar found support from ascending U.S. Treasury yields and diminished speculation regarding more aggressive easing measures by the Federal Reserve. This support allowed USD/JPY to attract buyers in proximity to the crucial 200-day simple moving average (SMA), prompting a rebound of approximately 50 pips from daily lows. While European markets witnessed spot prices gravitating back toward the 144.00 mark, significant upward movement remains elusive amid lingering uncertainty regarding the Fed’s approach to potential rate cuts.
Market participants are exercising caution and refraining from making bold directional moves, choosing to await the release of the latest U.S. consumer inflation data scheduled for Thursday. The impending U.S. Consumer Price Index (CPI) report is anticipated to offer insights into the timing of potential monetary policy adjustments by the Federal Reserve, a factor that will play a pivotal role in shaping USD price dynamics and determining the short-term trajectory of USD/JPY. Additionally, a scheduled speech by Federal Reserve Governor Michael Barr later in U.S. markets on Tuesday holds the potential to provide further momentum to market sentiment.
