Anna 
During early European trading on Monday, USD/JPY demonstrated a rebound after two consecutive days of losses, settling around 145.40. While the U.S. dollar index (DXY) showed signs of recovery, nearing 102.40, the looming expectation of a 25 basis points interest rate cut by the U.S. Federal Reserve (Fed) in its March meeting exerted downward pressure on the dollar.
Challenges for the dollar intensified with disappointing U.S. Producer Price Index (PPI) data, falling short of expectations, and declining U.S. Treasury yields. Presently, the 2-year and 10-year Treasury yields stand at 4.14% and 3.94%, respectively.
The Bank of Japan’s report on December money supply M2+CD revealed a consistent year-on-year reading at 2.3%, while Japanese two-year yields dipped below zero for the first time since July 2023.
Amid reports suggesting a potential lowering of the Bank of Japan’s core inflation forecast for fiscal 2024 due to the recent oil price decline, the central bank is expected to maintain its outlook of trend inflation hovering near the 2.0% target. This updated forecast is anticipated in the Bank of Japan’s forthcoming quarterly outlook report in January, with the ultra-loose policy settings expected to remain unchanged.
Traders are set to closely monitor Japan’s Consumer Price Index (CPI) data on Friday, while in the U.S., attention will shift to retail sales data on Wednesday and housing data on Thursday, contributing to the broader market sentiment.
