The slightly higher-than-expected rates of inflation in Japan revived bets for an imminent shift in the Bank of Japan's policy stance and offers some support to the Japanese Yen.
Japan's Statistics Bureau reported on Tuesday that the headline CPI rose by 0.1% MoM in January, though decelerated from the 2.6% YoY rate to 2.2% during the reported month.
Additional details of the report showed that the Core CPI, which excludes volatile fresh food items, climbed 2% YoY in January as compared to estimates for a 1.8% annual gain.
Furthermore, an underlying CPI reading that excludes both fresh food and energy slowed from the 3.7% YoY rate in December to 3.5%, or an 11-month low in January.
Meanwhile, the slowdown in inflation comes on top of an unexpected recession in Japan during the fourth quarter and allows the BoJ to stick to its ultra-loose policy.
The US Dollar languishes near its lowest level since February 2 touched amid a softer tone surrounding the US Treasury bond yields and weighs on the USD/JPY pair.
The markets recently pushed back expectations for the first rate cut by the Federal Reserve to June from May in the wake of sticky inflation and a resilient US economy.
Kansas City Fed President Jeffrey Schmid said that the US central bank should be patient and wait for convincing evidence that the inflation fight has been won.
Traders, however, seem reluctant to place aggressive bets and prefer to wait for more cues about the likely timing and the pace of interest rate cuts by the US central bank.
The market focus remains glued to the release of the US Personal Consumption Expenditures (PCE) Price Index on Thursday, which could provide a fresh impetus to the USD.
Traders on Tuesday will confront the release of US Durable Goods Orders, the Conference Board's US Consumer Confidence Index and the Richmond Manufacturing Index.
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