USD/JPY gathers strength under the 146.00 barrier on the renewed US Dollar demand

• USD/JPY trades in positive territory for the second consecutive day on Tuesday.
• The Japanese Producer Price Index (PPI) came in at 0.3% MoM in December vs. 0.2% prior, beating the estimation of 0%.
• Investors anticipate the interest rate cuts as soon as a Fed meeting in March.

The USD/JPY pair holds positive ground below the 146.00 barrier during the early Asian session on Tuesday. The uptick of the pair is bolstered by the stronger US Dollar (USD) broadly. Investors await the US NY Empire State Manufacturing Index on Tuesday for fresh impetus, which is expected to show a decrease of 5 in January from a 14.5 fall in the previous reading. At press time, USD/JPY is trading at 145.90, gaining 0.08% on the day.

Data released from the Statistics Bureau of Japan showed on Tuesday that the nation’s Producer Price Index (PPI) grew 0.3% MoM in December from 0.2% in November, beating the estimation of 0%. On an annual basis, the PPI figure remained flat in December from the previous reading of a 0.3% rise, above the market consensus of a 0.3% fall.

The Bank of Japan (BoJ) Governor Kazuo Ueda has stressed the need to maintain the ultraloose monetary policy as he awaits further data that might show if inflation will persist. He further stated that the central bank will scrap the negative rate when it becomes sufficiently certain of achieving sustainable inflation of 2%.

Furthermore, there are reports that Iran’s Revolutionary Guard has been deployed to assist Houthi terrorists in Yemen. That being said, the escalation in the Middle East might boost safe-haven flow and benefit the Japanese Yen (JPY).

On the other hand, market players are expecting interest rate cuts as soon as a Fed meeting in March. According to the CME FedWatch tool, markets put the probability of a rate cut in March at nearly 71%. Atlanta Federal Reserve (Fed) President Raphael Bostic said that inflation could “see-saw” if policymakers cut interest rates too soon. Bostic added that inflation must firmly and surely get back to our 2% target.

Later on Tuesday, the US NY Empire State Manufacturing Index will be due. Additionally, the Fed’s Christopher J. Waller might offer some hints about further monetary policy stances later in the day. On Wednesday, attention will shift to US Retail Sales, which is projected to show an increase of 0.4% in December. These figures might give a clear direction to the USD/JPY pair.