USD/JPY remains confined in a range around mid-113.00s, eyes US CPI for fresh impetus

• USD/JPY extended its sideways consolidative price move for the fourth successive day on Friday.
• A softer risk tone benefitted the safe-haven JPY, though rising US bond yields extended support.
• Investors seemed reluctant and preferred to wait for the release of US consumer inflation figures.

The USD/JPY pair lacked any firm directional bias and remained confined in a narrow trading band near mid-113.00s heading into the European session.

The pair, so far, has struggled to gain any meaningful traction and extended its range-bound price action for the fourth successive day on Friday. A softer risk tone – amid mixed headlines on the Omicron variant of the coronavirus – benefitted the safe-haven Japanese yen. This, in turn, was seen as a key factor that capped the upside for the USD/JPY pair.

The downside, however, remains cushioned amid an uptick in the US Treasury bond yields. This, along with hawkish Fed expectations, acted as a tailwind for the US dollar and extended some support to the USD/JPY pair. Investors also seemed reluctant to place aggressive bets, rather preferred to wait on the sidelines ahead of the US consumer inflation figures.

The markets seem convinced that the Fed would tighten its monetary policy sooner rather than later to contain stubbornly high inflation and have been pricing in the possibility of liftoff in May 2022. Hence, the US CPI report, due later during the early North American session, will offer clues about the Fed's next policy move and strategy on interest rate hikes.

This will play a key role in influencing the USD demand and provide a fresh impetus to the USD/JPY pair heading into the FOMC monetary policy meeting on December 14-15. A stronger print will reinforce hawkish Fed expectations, which should be enough to provide a fresh lift to the greenback and set the stage for some meaningful upside for the major.

Technical levels to watch