The USD/JPY pair climbed to around 149.20 during North American trading hours on Wednesday as the US Dollar (USD) gained traction despite a weaker-than-expected February Consumer Price Index (CPI) report. The US Dollar Index (DXY) rebounded to approximately 103.75 after touching a four-month low of 103.20 on Tuesday.

The US CPI data indicated a slowdown in inflation, with headline inflation rising by 2.8% year-over-year, slightly below the forecasted 2.9% and down from January’s 3% increase. Core CPI, which strips out food and energy prices, eased to 3.1% from 3.3%, compared to the projected 3.2%. On a monthly basis, headline and core CPI increased by 0.2%, underperforming expectations of 0.3%.

With inflationary pressures cooling, market participants anticipate a greater likelihood of the Federal Reserve (Fed) reducing interest rates in its May meeting. Fed Chair Jerome Powell recently noted that the current restrictive monetary policy may not persist if labor market conditions weaken unexpectedly or inflation declines faster than expected.

Despite recent USD strength, the broader outlook remains weak due to growing concerns about the potential economic impact of former US President Donald Trump’s proposed tariff policies. Meanwhile, expectations are rising that the Bank of Japan (BoJ) could implement another interest rate hike later this year, supporting the Japanese Yen (JPY).

Trade Idea: Consider shorting USD/JPY near 149.50 with a target of 148.00, anticipating BoJ policy tightening and Fed rate-cut expectations to weigh on the USD.