USD/JPY steadily climbs back closer to mid-143.00s, upside potential seems limited

• USD/JPY ticks higher for the second straight day and draws support from a combination of factors.
• A downward revision of Japan's GDP print and a positive risk tone undermines the safe-haven JPY.
• Reduced bets for a 50 bps Fed rate cut in September push the USD higher and further lend support.

The USD/JPY pair turns positive for the second straight day following an early Asian session dip to the 142.85 region, albeit it lacks bullish conviction. Spot prices currently trade with a mild positive bias just below mid-143.00s and remain well within the striking distance of a one-month low touched last Friday. 

The Japanese Yen (JPY) continues to be undermined by data published on Monday, which showed that the economy grew at a slightly slower pace than initially reported in the second quarter. This could possibly complicate the Bank of Japan's (BoJ) plan to hike interest rates further in the coming months. Apart from this, a generally positive risk tone around the equity markets dents demand for the safe-haven JPY and acts as a tailwind for the USD/JPY pair amid some follow-through US Dollar (USD) buying interest. 

The USD Index (DXY), which tracks the Greenback against a basket of currencies, climbs to a multi-day peak amid reduced bets for a larger, 50 basis points (bps) interest rate cut by the Federal Reserve (Fed) in September. The markets, however, have fully priced in at least a 25 bps Fed rate cut move later this month. In contrast, the BoJ is expected to hike interest rates again by the end of this year. This might hold back bullish traders from placing aggressive bets around the USD/JPY pair and cap gains.

Investors might also prefer to move to the sidelines and wait for the release of the US consumer inflation figures on Wednesday before placing fresh directional bets. Hence, a strong follow-through buying is needed in order to confirm that the USD/JPY pair has formed a near-term bottom and positioning for any meaningful appreciating move amid absent relevant US macro data on Tuesday. That said, speeches by influential FOMC members might provide some impetus later during the US session.