• The Japanese Yen struggles to capitalize on Tuesday’s Tokyo CPI-inspired gains.
• The BoJ policy uncertainty is holding back the JPY bulls from placing fresh bets.
• Subdued USD price action caps USD/JPY ahead of US data, Powell’s testimony.

The Japanese Yen (JPY) gained some positive traction and snapped a two-day losing streak against its American counterpart on Tuesday, though the momentum lacked strong follow-through. A rise in consumer prices in Tokyo – Japan's capital city – comes on top of speculations that another substantial round of pay hikes by Japanese firms could fuel consumer spending and demand-driven inflation. This keeps the door open for an imminent shift in the Bank of Japan's (BoJ) policy stance, which, along with the overnight slump in the US equity markets, provided a goodish lift to the safe-haven JPY.

That said, an unexpected recession in Japan raises uncertainty about the BoJ's plan to exit its ultra-easy policy sometime this year, which, in turn, keeps a lid on any further gains for the JPY. The downside, however, remains cushioned in the wake of subdued US Dollar (USD) demand, undermined by Tuesday's disappointing US macro data. Furthermore, traders seem reluctant to place aggressive directional bets and prefer to wait for more cues about the Federal Reserve's (Fed) rate-cut path. Hence, the focus will remain on Fed chair Jerome Powell's two-day congressional testimony starting this Wednesday.

Apart from this, the US macro releases – the ADP report on private-sector employment and JOLTS Job Openings data – should provide some impetus to the USD/JPY pair later during the early North American session. The market attention will then shift to the closely-watched official US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report on Friday. Heading into the key event/data risks, traders might opt to wait on the sidelines. Moreover, the mixed fundamental backdrop warrants caution before positioning for a firm near-term direction for the currency pair.