USD/JPY consolidates above 139.00 as investors turn anxious ahead of US CPI

• USD/JPY is consolidating above 139.00 as Fed/BoJ policy comes into the picture.
• Market sentiment is quite positive as the odds of a neutral policy stance by the Fed are extremely solid.
• The interest rate policy by the BoJ is expected to remain unaltered as more monetary stimulus is required to keep inflation steadily above 2%.

The USD/JPY pair is oscillating in a narrow range around 139.50 in the late Asian session. The asset is expected to remain on tenterhooks as investors have shifted their focus toward the United States Consumer Price Index (CPI) data, which will release on Tuesday.

S&P500 futures have added significant gains in Asia, portraying a strong addition to the risk appetite of the market participants. Market sentiment is quite positive as the odds for the interest rate decision by the Federal Reserve (Fed) are more tilted toward a neutral policy stance.

The US Dollar Index (DXY) has shown a mild correction to near 103.60 after a decent rally. A sideways performance is widely anticipated from the USD Index as the release of the US CPI is going to provide further guidance. The US Treasury yields are also choppy ahead of the inflation data. The yields offered on 10-year US Treasury bonds have climbed above 3.76%.

As per the preliminary report, headline inflation is seen softening to 4.2R% vs. the prior release of 4.9% on an annualized basis. It seems that lower oil prices have decelerated the pace of overall inflation. While core CPI that excludes the impact of oil and food prices is expected to accelerate marginally to 5.6% from the former release of 5.5%.

Scrutiny of the US preliminary inflation report shows that households’ demand for durables and services is consistently rising, which would keep pressure on Fed policymakers for hawkish guidance.

Meanwhile, the Japanese Yen will also remain in the spotlight ahead of the interest rate decision by the Bank of Japan (BoJ). The interest rate policy by BoJ Governor Kazuo Ueda is expected to remain unaltered as more monetary stimulus is required to keep inflation steadily above 2%.