USD/JPY manages to hold above 142.00 mark, focus remains on US inflation data

• USD/JPY meets with a fresh supply amid sustained USD selling and retreating US bond yields.
• The risk-on impulse, Fed-BoJ policy divergence undermines the JPY and extends some support.
• Investors now await the crucial US CPI report before positioning for a firm near-term direction.

The USD/JPY pair comes under renewed selling pressure on Tuesday and drops to a fresh daily low during the early European session. Spot prices, however, manage to find some support near the 142.00 mark and quickly bounce back to the 142.25-142.30 region in the last hour.

The US dollar remains depressed near the monthly low touched on Monday and turns out to be a key factor exerting some downward pressure on the USD/JPY pair. A survey released by the Federal Reserve Bank of New York that consumer expectations for US inflation over the coming years declined sharply to the lowest level since October 2021. Apart from this, a modest downtick in the US Treasury bond yields weighs on the greenback.

Furthermore, speculations that authorities may soon step in to arrest a freefall in the Japanese yen also contribute to offered tone surrounding the USD/JPY pair. That said, a generally positive tone around the equity markets undermines the safe-haven JPY. This, along with a big divergence in the monetary policy stance adopted by the Bank of Japan and the Federal Reserve helps limit the downside for the major, at least for now.

It is worth mentioning that the BoJ has been lagging behind other major central banks in the process of policy normalisation and remains committed to continuing with its monetary easing. In contrast, the Fed is expected to tighten its policy at a faster pace to tame inflation. Hence, the focus will remain glued to the US consumer inflation figures for August, due for release later during the early North American session this Tuesday.

The crucial US CPI report will play a key role in influencing the Fed's policy outlook and dictate the near-term USD trajectory. This, in turn, will help determine the next leg of a directional move for the USD/JPY pair. In the meantime, traders might refrain from placing aggressive bets, warranting some caution before positioning for any further intraday depreciating move heading into the key data risk.

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