The USD/JPY pair moves sharply higher to near 158.00 in Tuesday’s European session. The asset gains firmly as the safe-haven appeal of the Japanese Yen (JPY) has faltered amid recovery in demand for risk-sensitive assets.

The Yen performed strongly in last three trading days against the US Dollar (USD) despite the latter rallied to a fresh more-than-two-year high. However, the Yen appears to be losing heat, with investors focusing on the United States (US) Consumer Price Index (CPI) data for December, which will be published on Wednesday.

Analysts at Bank of America (BofA) expect, "If US CPI surprises to the upside this week, upward pressure for USDJPY spot is likely to resume, due to the pair's high sensitivity to CPI surprises."

According to market expectations, annual headline inflation is estimated to have grown by 2.8%, faster than 2.7% in November. In the same period, the core CPI – which excludes volatile food and energy prices – rose steadily by 3.3%.

Signs of price pressures remaining stubborn would further weigh on Federal Reserve (Fed) dovish bets. Lately, Fed dovish prospects trimmed significantly after the release of the surprisingly stronger US Nonfarm Payrolls (NFP) data for December.

On the domestic front, the Japanese Yen will be influenced by the market speculation for the Bank of Japan’s (BoJ) likely interest rate action in the policy meeting on January 24. BoJ Deputy Governor Ryozo Himino said on Tuesday that the board will discuss whether to “raise interest rates next week and reach a decision”, based on the economic and price projections laid out in our quarterly outlook report."

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