USD/JPY pares intraday recovery gains, hangs near multi-month low set earlier this Monday

• USD/JPY rebounds from a nearly nine-month low touched earlier this Monday.
• A goodish USD recovery turns out to be a key factor lending support to the pair.
• The upside remains capped as traders await the BoJ decision for a fresh impetus.

The USD/JPY pair stages a goodish recovery from its lowest level since late May set earlier this Monday and snaps a two-day losing streak. The pair, however, retreats a few pips from the daily high and slips back below the mid-128.00s during the mid-European session.

The US Dollar rebounds after hitting a seven-month low, which, in turn, is seen as a key factor lending some support to the USD/JPY pair. The intraday USD uptick, meanwhile, lacks any obvious fundamental catalyst and remains capped amid firming expectations for a less aggressive policy tightening by the Fed. In fact, the markets are now pricing in a smaller 25 bps lift-off in February and expect the US central bank to pause its rate-hiking cycle, possibly after the March FOMC meeting.

The speculations were fueled by the latest US consumer inflation figures released last week, which showed that the headline CPI fell in December for the first time in more than 2-1/2 years. This should keep a lid on any meaningful upside for the Greenback. The Japanese Yen, on the other hand, continues to draw support from bets that the Bank of Japan (BoJ) will tweak its yield control policy further, which, in turn, contributes to capping the USD/JPY pair's attempted recovery.

Traders also seem reluctant and prefer to move to the sidelines ahead of the BoJ policy decision, due to be announced during the Asian session on Wednesday. Heading into the key central bank event risk, the US markets will be closed on Monday in observance of Martin Luther King Jr. Day. This further makes it prudent to wait for a strong follow-through buying before confirming that the USD/JPY pair has formed a near-term bottom and positioning for any meaningful recovery. The next key support level is the 126.45 trough low of May 2022. The pair is staeadily channelling lower and despite the recovery today bears still have the upper hand. 

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