I recently took notice of such formations and have come to appreciate its usefulness.
When a pair trends in a certain direction, and such a formation forms, it usually indicates indecisiveness/loss in momentum of the prevailing trend,
because the candle's highs and lows (note: not closing price!) forms WITHIN the highs and lows of the previous candle.
What happens next is traders will watch price action closely to re-determine the sentiment of the market, by watching if price breaks above/below the larger range (previous) candle.
A break of the larger (previous) candle's range will likely see price spike in that direction at around 50pips or more, depending on the buildup of stops/orders.
In such a scenario:
Do note that prices tend to draw back after such price spikes because these are usually quick moves where may stops/orders are placed.
However, after some consolidation, if prices do not withdraw and close back into the high/low range, it usually indicates a continuation prevailing direction.
See an example of how it played out on this chart on 22-24th Dec 2015, and 4-5th Jan 2016
Recently, we have been seeing alot of such formations on the UJ daily due to heightened and drastic moves.
Today, another inside day candle might be underway in formation.
UJ traders should watch the high (117.685) and low (115.973) closely in the subsequent days.
Currently, I remain for UJ, but like I have mentioned in my analysis, do watch out for BOJ surprises (eg. additional easing etc.) that may change sentiment.