■   The Japanese Yen regains some positive traction during the Asian session on Tuesday.

■   USD/JPY erodes a part of its strong recovery gains registered over the past two days.

■   Investors look to the US CPI for a fresh impetus ahead of the FOMC on Wednesday.

The Japanese Yen (JPY) continued losing ground for the second straight day on Monday and erased a major part of its last week's strong gains against the US Dollar (USD) amid diminishing odds for an imminent shift in the Bank of Japan's (BoJ) policy stance. Bloomberg News reported that BoJ officials see little need to abandon the negative interest rate policy this month and there isn't enough evidence about the wage growth to justify ending the ultra-loose monetary policy. This, along with a positive risk tone, with US stocks closing at a new high for the year, turned out to be a key factor weighing heavily on the JPY.

This, in turn, pushed the USD/JPY pair beyond mid-146.00s on Monday, summing up to a rally of over 400 pips from Friday's swing low and a near 500 pips from a multi-month trough touched last Thursday. The strong move up, however, runs out of steam near the 200-hour Simple Moving Average (SMA), dragging spot prices to the 145.70 region during the Asian session on Tuesday in the wake of subdued USD price action. Traders now seem reluctant to place aggressive directional bets and prefer to wait for more clarity on the Federal Reserve's (Fed) next policy move amid hopes of a soft landing for the US economy.

The closely-watched US Nonfarm Payrolls (NFP) report released on Friday showed that the US economy notched another solid month of jobs growth and the unemployment rate fell to 3.7% in November. This, in turn, forced investors to trim their bets for a 25 basis points (bps) Fed rate cut move in March 2024. Meanwhile, a New York Fed survey released on Monday indicated that consumer inflation expectations dropped in November to the lowest level in more than two years, reaffirming speculations that the US central bank may begin easing its monetary policy by the first half of the next year.

Hence, investors will keep a close eye on the release of the US consumer inflation figures on Thursday, followed by the Producer Price Index (PPI) on Wednesday. The focus, however, remains glued to the outcome of the highly-anticipated FOMC monetary policy meeting, scheduled to be announced on Wednesday. The so-called "dot plot" will be looked upon for fresh cues about the Fed's rate path, which, in turn, will drive the USD demand and help determine the near-term trajectory for the USD/JPY pair.

The Japanese Yen turned out to be the worst-performing G10 currency on Monday after reports downplayed speculations that the Bank of Japan was close to tightening policy.

A Reuters report on Friday, citing three sources familiar with the BoJ’s thinking, that Governor Ueda’s remarks last week on policy options were not intended to hint at a potential exit timing.

Bloomberg News also reported on Monday, citing sources, that BoJ officials are yet to see enough evidence of strong wage growth to justify abandoning the negative rate policy this month.

This comes on the back of the recent rally in the US equity markets, which closed at a new high for the year on Monday and in turn, exerted heavy downward pressure on the safe-haven JPY.

The US Dollar struggles to capitalize on the upbeat US jobs data-inspired positive move amid the uncertainty over when the Federal Reserve may start easing its policy rates and cut rates.

A New York Fed survey showed on Monday that consumers expect inflation to be at 3.4% a year from now, down from an expectation of 3.6% in October and the lowest reading since April 2021.

This, along with the stronger-than-expected US employment figures, lifted hopes of a soft landing for the US economy and pushed back against expectations for the first rate cut in March 2024.

Investors now look forward to the crucial US consumer inflation data, which is expected to show that the headline CPI rose by 0.1% in November and the yearly pace ticked down to 3.1%.

Meanwhile, the core gauge (excluding volatile food and energy prices) is anticipated to edge up from a 0.2% MoM rate to 0.3% in November and hold steady at 4% YoY.

The focus, however, will remain glued to the highly-anticipated FOMC monetary policy decision on Wednesday, which will play a key role in influencing the near-term USD price dynamics.

From a technical perspective, the overnight failure near the 200-hour SMA and the subsequent fall during the Asian session on Tuesday warrants some caution for bullish traders. Any further decline, however, is likely to find some support near the 145.40 area, representing the 23.6% Fibonacci retracement level of the recent strong rebound from a multi-month low touched last Thursday. With oscillators on the daily chart still holding deep in the negative territory, some follow-through selling could make the USD/JPY pair vulnerable to accelerate the slide further towards the 145.00 psychological mark en route to the 38.2% Fibo. level, around the 144.70-144.65 region.

On the flip side, the 146.00 round figure now seems to act as an immediate barrier. Bulls, meanwhile, need to wait for a sustained strength beyond the 200-hour SMA resistance, currently pegged near mid-146.00s, before positioning for any further move up. The USD/JPY pair might then aim to surpass the 147.00 mark and test the next relevant hurdle near the 147.40-147.50 supply zone. The latter should act as a key pivotal point, which if cleared decisively will suggest that the recent sharp pullback from the 152.00 neighbourhood, or the YTD peak, has run its course and shift the bias in favour of bullish traders.