USD/JPY pares modest intraday losses, climbs back above 132.00 ahead of US CPI

• USD/JPY edges lower on Tuesday, though the downside lacks strong follow-through.
• Speculations for a hawkish shift by the BoJ benefit the JPY amid sustained USD selling.
• The downside remains cushioned as traders seem reluctant ahead of the US CPI report.

The USD/JPY pair comes under some selling pressure on Tuesday and erodes a part of the previous day's strong gains to the 133.00 neighbourhood or a fresh monthly top. The pair, however, manages to recover a few pips during the first half of the European session and is now trading around the 132.15-132.20 region, down less than 0.20% for the day.

The US Dollar extends the overnight retracement slide from a multi-week high amid a further decline in the US Treasury bond yields. Furthermore, speculations that the new Bank of Japan (BoJ) governor candidate Kazuo Ueda will dismantle the yield curve control sooner rather than later underpins the Japanese Yen (JPY). This turns out to be a key factor exerting some downward pressure on the USD/JPY pair.

The downside, however, remains cushioned, at least for the time being, as traders seem reluctant to place aggressive bets ahead of the US consumer inflation figures. The crucial US CPI report is due for release later during the early North American session and will play a key role in influencing the Fed's rate-hike path. This, in turn, will drive the USD demand and provide a fresh directional impetus to the USD/JPY pair.

In the meantime, the risk of a stronger US CPI print should help limit the USD losses and continue to lend some support to the USD/JPY pair. The expectations were fueled by the US Labor Department's annual revisions of CPI data released last Friday, which showed that monthly consumer prices rose in December instead of falling as previously estimated. This, in turn, warrants some caution before positioning for further losses.

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