• USD/JPY struggles to extend two-week uptrend, bounces off intraday low of late.
• BoJ’s sustained defense of YCC contrasts with talks surrounding Fed’s pivot to keep bears hopeful.
• Rebound in yields, US Dollar challenge Yen pair sellers amid light calendar.
• China’s return from holidays, US employment numbers also eyed for clear directions.

USD/JPY remains on the back foot around 129.90, despite recently bouncing off intraday low, as the traders in Tokyo begin the key week with mixed feelings. In doing so, the Yen pair challenges the previous two-week uptrend amid sluggish yields, cautious optimism in the market.

That said, China’s return from the Lunar New Year (LNY) holidays brought good news of higher festive spending and the dragon nation’s readiness to boost the consumption. On the same line could be the hopes of the Federal Reserve’s (Fed) dovish hike after the last week’s mixed data.

On Friday, the Federal Reserve's preferred gauge of inflation, namely the Core Personal Consumption Expenditures (PCE) Price Index, matched 4.4% YoY market forecast versus 4.7% prior while the monthly figure rose to 0.3% versus 0.2% expected and previous readings. Ahead of that, the US Bureau of Economic Analysis' (BEA) first estimate of the US fourth quarter (Q4) Gross Domestic Product marked an annualized growth rate of 2.9% versus 2.6% expected and 3.2% prior. On the same line, the Durable Goods Orders jumped 5.6% in December versus 2.5% market forecast and -1.7% upwardly revised prior.

Alternatively, the Bank of Japan’s (BoJ) repeated attempts to defend the Yield Curve Control (YCC), amid recently firmer inflation data from Tokyo, exert downside pressure on the USD/JPY prices.

Against this backdrop, the US 10-year Treasury yields remains lackluster near 3.51% after snapping two-week downtrend whereas the S&P 500 Futures print mild losses.

Looking forward, a light calendar may restrict immediate USD/JPY moves but China’s return from holidays could entertain momentum traders. It’s worth observing that the latest market favor for the US Dollar and the Treasury bond yields may help the Yen pair in extending the previous two-week uptrend.

Above all, this week’s Federal Reserve (Fed) decision and the US employment data for January will be crucial for the market players to watch for clear directions.