USD/JPY corrects sharply to near 134.00 despite investors anticipate a dovish BoJ policy

• USD/JPY has dropped sharply to near 134.00 after a significant sell-off in the USD Index.
• Investors dumped the US Dollar in anticipation that the Fed will pause rate hikes after raising them one more time in May.
• BoJ Ueda is in no hurry of tweaking the Yield Curve Control (YCC) as inflation is expected to peak sooner.

The USD/JPY pair has displayed a steep fall to near 134.00 in the Asian session after failing to sustain above 134.60. The asset has faced immense selling pressure amid a sell-off in the US Dollar index (DXY). The USD Index has corrected firmly to 101.26 after a breakdown of the consolidation formed in a 101.64-102.22 range.

Investors dumped the US Dollar in anticipation that the Federal Reserve (Fed) will consider a pause in the policy-tightening spree after raising interest rates one more time in May. Preliminary United States S&P Manufacturing PMI showed a recovery after landing above 50.0 for the first time in the past six months.

It is worth noting that a figure of 50.0 is considered an expansion in the scale of PMI. However, a one-time figure of recovery is insufficient to infuse optimism in investors. Therefore, the street is anticipating that the Fed will hold key rates steady after pushing rates above 5% to avoid a recession situation in the United States economy.

Meanwhile, S&P500 futures are showing nominal gains in the Asian session after a moderately positive Monday, portraying a minor recovery in the risk appetite of the market participants. The US Treasury yields have dropped further following the footprints of the USD Index. The yields on 10-year US Treasury bonds have dropped further below 3.48%.

This week, the Japanese Yen could face immense volatility amid the interest rate decision by the Bank of Japan (BoJ).  A continuation of the decade-long ultra-loose monetary policy by BoJ Governor Kazuo Ueda is highly expected in order to keep inflation steadily above 2%. The BoJ has no plans for tweaking Yield Curve Control (YCC) sooner amid evidence of inflation peaking.