• USD/JPY's ascent influenced by a stronger Dollar, with DXY up 0.15%, and market focus on Fed's monetary policy trajectory.
• Market estimates of significant Fed rate cuts in 2024 drive currency dynamics despite recent US inflation data.
• Upcoming Japanese and US economic releases, including Japan's PPI and the NY Fed Manufacturing Index, to provide further insights

The USD/JPY climbed late in the North American session on Monday amid low volume conditions as the United States (US) financial markets remained closed on Martin Luther King Day. Despite that, the Greenback (USD) remains strong across the board, as the USD/JPY exchanges hands at 145.79, up by 0.63%.

USD/JPY at the mercy of Fed’s rate cuts expectations

As mentioned above, the US Dollar Index (DXY); a gauge of the buck’s performance against a basket of six currencies including the Japanese Yen (JPY) climbs 0.15%, at 102.58, a tailwind for the USD/JPY. The lack of economic data released on the day keeps traders entertained with the Federal Reserve’s (Fed) prospects to relax monetary conditions via the Chicago Board of Trade (COT).

Interest rates market participants estimate the US Central Bank would cut rates by more than 170 basis points in the year, even though consumer prices rose above estimates and the prior readings. That was overshadowed by last Friday’s Producer Price Index (PPI), which witnessed an increase of more than 80% odds for a 25 bps cut in March.

Aside from this, the Japanese economic docket would feature the Producer Price Index for December, which is expected to show some deceleration, alongside the Reuters Tankan Index on Tuesday. On the US front, the economic docket would feature the New York Fed Empire State Manufacturing Index and a speech by US Federal Reserve Governor Christopher Waller. That comes ahead of Wednesday’s Retail Sales and Industrial Production