• USD/JPY trades flat near 149.35 as traders turn cautious. 
• The softer US CPI data could potentially boost the Fed's confidence that inflation will return to its target.
• The dovish remarks from the BoJ weigh on the Japanese Yen. 
• Market players will closely watch the US Consumer Price Index (CPI) data for January, due on Tuesday.

The USD/JPY pair trades on a flat note during the early Asian session on Tuesday. The uncertainty about the timeline of interest rate cuts leads to the consolidation of the US Dollar (USD). Traders prefer to wait on the sidelines ahead of the US Consumer Price Index (CPI) data for January, which could offer some hints about when the Fed is likely to start cutting interest rates. As of writing, USD/JPY is trading higher by 0.02% on the day at around 149.35.

Tuesday's CPI report is a crucial event to watch. Headline CPI is predicted to grow 2.9% YoY, down from 3.4% in December. Core CPI, excluding volatile food and energy prices, is expected to be 3.7% YoY, down from 3.9% in the previous reading. On a monthly basis, investors expect the headline and core CPI to rise gradually at 0.2% and 0.3%, respectively.

Fed officials need more evidence that inflation is on a sustainable path to return to the 2% target before they start cutting rates. The softer US inflation data could potentially boost the Fed's confidence that inflation will return to its target. This, in turn, might weigh on the Greenback and act as a headwind for the pair. According to the CME FedWatch Tool, investors are pricing in 84.5% odds of rates holding unchanged in March, while the probability of 25 basis points (bps) rate cuts in May has decreased to 61% from over 95% at the beginning of 2024.

On the Japanese Yen front, the Bank of Japan (BoJ) governor Kazuo Ueda said last week that even if the BoJ ends minus rates, accommodative financial conditions will likely continue based on the bank’s economic outlook. BOJ deputy governor Shinichi Uchida indicated that it is difficult to see the central bank raising its policy rate consistently and fast even after the subzero rate regime ends. That being said, the dovish comments from the Japanese central bank might undermine the JPY and cap the downside of the USD/JPY.