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The USD/JPY pair attracts some buying interest during Tuesday's Asian session and gradually climbs back towards the 139.00 level, but lacks follow-through and remains well within the previous day's trading range.

A reversal in global risk sentiment, as illustrated by the overnight rally in US equity markets, weakens the safe-haven Japanese Yen (JPY) and operates as a tailwind for the USD/JPY currency pair. The upside remains constrained, however, as a result of the underlying bearish sentiment surrounding the US Dollar (USD), which continues to be weighed down by firming expectations that the Federal Reserve (Fed) will moderate its hawkish posture.

Investors now appear to be convinced that the US Federal Reserve is approaching the end of its policy tightening cycle and will hold interest rates steady for the remainder of the year following the expected 25 basis point increase in July. The incoming US macro data indicated a further moderation in consumer inflation, leading to the recent decline in US Treasury bond yields and keeping USD supporters on the defensive.

On the other hand, speculation that the Bank of Japan (BoJ) could alter its Yield Curve Control (YCC) policy as early as this month continues to support the JPY. In fact, Japanese media reported that the BoJ is likely to increase its inflation forecast for FY2023, which has exceeded the 2% target for more than a year and should put pressure on the central bank to begin tightening its ultra-lax monetary policy settings.

Aside from this, concerns about a global economic slowdown, fuelled by Monday's weaker Chinese GDP print, should limit losses for the safe-haven JPY and contribute to capping gains for the USD/JPY pair. Before confirming that spot prices have formed a near-term bottom and positioning for any meaningful recovery from last Friday's two-month low, it is prudent to await strong follow-through purchasing.

The economic calendar for the United States will feature the publication of monthly Retail Sales and Industrial Production figures in the early North American session. Together with US bond yields, this may affect the USD's price dynamics and provide some impetus for the USD/JPY pair. Aside from this, the broader risk environment should contribute to the production of opportunities in the short term.

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