USD/JPY halts its losses despite downbeat US Treasury yields, trades higher near 145.40

USD/JPY trades higher after registering two days of losses. The USD/JPY pair hovers around 145.40 during the early European session on Monday. The US Dollar Index (DXY) retraces its intraday losses, trading around 102.40, at the time of writing. However, the US Federal Reserve (Fed) is expected to cut interest rates by 25 basis points in its March meeting, which puts downward pressure on the US Dollar.

Moreover, the Greenback also faces a challenge on downbeat US Treasury yields, which could be attributed to the weaker-then-expected Producer Price Index (PPI) data from the United States (US). The 2-year and 10-year yields on US bond coupons stand lower at 4.14% and 3.94%, respectively, by the press time.

The Bank of Japan released the Money Supply M2+CD (YoY) for December, which remained consistent at 2.3% as previously. Machine Tool Orders (YoY) decline by 9.9% from the previous decline of 13.6, respectively.  Moreover, Japan's two-year yield has dropped back under zero for the first time since July 2023.

On Friday, reports indicated that the Bank of Japan (BOJ) is likely to lower its core inflation forecast for the fiscal year 2024 due to the recent decline in oil prices. Despite global economic uncertainty and subdued spending, the BOJ is expected to maintain its projection that trend inflation will remain near its 2.0% target in the coming years. This updated forecast will be included in the bank's quarterly outlook report scheduled for its upcoming January meeting. It is widely anticipated that the BOJ will keep its ultra-loose policy settings unchanged during this policy meeting.

Japan’s Consumer Price Index (CPI) data will be observed on Friday by the traders. On the US docket, traders will likely observe the Retail Sales data on Wednesday and housing data on Thursday.