Ella 
On Friday, the yen rose to its highest level against the dollar since early February on expectations of an imminent shift in the Bank of Japan’s monetary policy stance. In addition, investors appear to believe that another sharp increase in wages in Japan will exacerbate demand-driven inflationary pressures and prompt the Bank of Japan to end negative interest rates at its March 18-19 meeting at the earliest. Coupled with the upward revision of Japan’s fourth-quarter GDP, the currency pair came under pressure in Asia on Monday.
On the other hand, the U.S. dollar (USD) is expected to build on late Friday’s rebound from its lowest levels since mid-January hit after the U.S. jobs report and help limit further losses for the pair. Still, growing consensus that the Federal Reserve (Fed) is expected to begin cutting interest rates in the coming months is discouraging dollar bulls from making rash bets. Beyond this, a generally softening risk tone could benefit the yen’s relative safe-haven status and help dampen any meaningful recovery in the USD/JPY pair.
Currently, market focus has turned to U.S. consumer inflation data due to be released on Tuesday. The crucial U.S. CPI report will influence investor expectations for the path of interest rate cuts from the Federal Reserve, which in turn will play a key role in driving near-term dollar demand. However, the above fundamental backdrop suggests that the path of least resistance for the USD/JPY pair is to the downside and bullish traders should proceed with caution.
