The Japanese yen edged lower against the US dollar on Tuesday as currency traders adopted a cautious approach ahead of the latest US Consumer Price Index (CPI) inflation data. Investors are closely monitoring the upcoming figures for clues about the Federal Reserve’s monetary policy outlook.

The US inflation report is expected to play an important role in determining whether the Federal Reserve will consider adjusting interest rates in the coming months. Stronger-than-expected inflation could strengthen expectations that US interest rates will remain elevated for longer, potentially supporting the dollar against major currencies, including the yen.

Meanwhile, weaker inflation figures could increase expectations of monetary easing and put pressure on the US dollar, providing some support to the Japanese currency.

The yen has remained sensitive to differences between US and Japanese monetary policies. While the Bank of Japan has gradually moved away from its ultra-loose monetary policy, uncertainty surrounding the pace of future rate adjustments continues to influence investor sentiment.

Market participants are also watching developments in US Treasury yields, global risk appetite and broader economic indicators. Higher US bond yields generally make dollar-denominated assets more attractive, creating additional pressure on the yen.

For now, traders are likely to remain cautious until the US CPI figures provide clearer direction. The inflation data could trigger fresh volatility in currency markets and influence expectations for interest rates on both sides of the Pacific.