The Japanese Yen is undermined by the weaker Tokyo Core CPI released on Friday.

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• The Japanese Yen is undermined by the weaker Tokyo Core CPI released on Friday.
• The USD holds steady just below the monthly peak and lends support to USD/JPY.
• Traders, however, seem reluctant amid the uncertainty over the Fed’s rate cut path.

The Japanese Yen (JPY) remains on the defensive against its American counterpart for the third successive day on Monday and remains well within the striking distance of a two-month low touched on January 19. The inflation rate in Japan’s capital city of Tokyo fell below the Bank of Japan’s (BoJ) 2% target for the first time in nearly two years, which, in turn, is seen undermining the JPY. The US Dollar (USD), on the other hand, holds steady just below its highest level since December 13 and turns out to be another factor acting as a tailwind for the USD/JPY pair during the Asian session.

The downside for the JPY, however, remains limited in the wake of the BoJ’s hawkish tilt last week, suggesting that conditions for phasing out huge stimulus and pulling short-term interest rates out of negative territory were falling into place. Apart from this, a generally weaker tone around the equity markets could benefit the JPY’s safe-haven status and contribute to capping the USD/JPY pair. Traders might also refrain from placing aggressive directional bets ahead of a two-day FOMC meeting starting on Tuesday and this week’s important US macro releases, including the NFP report on Friday.

From a technical perspective, last week’s failure to find bearish acceptance below the 100-day Simple Moving Average (SMA) and the subsequent move-up support prospects for additional gains. Moreover, oscillators on the daily chart are holding comfortably in the positive territory and are still far from being in the overbought zone, validating the bullish outlook for the USD/JPY pair. Bulls, however, might wait for some follow-through buying beyond the multi-week top, around the 148.80 region, before positioning for a further near-term appreciating move towards the 149.30-149.35 intermediate hurdle en route to the 150.00 psychological mark.

On the flip side, the 100-day SMA, around the 147.55 region, is likely to act to protect the immediate downside. Any further slide is likely to attract some buyers near the 147.00 round figure, which should help limit the downside for the USD/JPY pair near the 146.45 area or last week’s swing low. A convincing break below the latter might shift the near-term bias in favour of bearish traders and drag spot prices to the 146.10-146.00 horizontal support. The downward trajectory could extend further towards the 145.30-145.25 area before the pair eventually drops to the 145.00 psychological mark.

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