USD/JPY extends correction to near 141.00 despite Fed-BoJ policy divergence to widen further

• USD/JPY stretches its correction to near 141.00 Japan’s Kanda hopes for a tweak in monetary policy this week.
• US core inflation is softening but at a slower pace due to resilient consumer spending.
• The US Dollar Index has surrendered its entire gains ahead of the preliminary S&P Global PMI data for further guidance.

The USD/JPY has dropped to near the 141.00 support in the London session. The asset is expected to remain in action as the Federal Reserve (Fed) and the Bank of Japan (BoJ) will announce their interest rate decision on July 26 and July 28 respectively.

The major is facing pressure despite investors hoping that Fed-BoJ policy divergence would widen further this week. The Fed is expected to raise interest rates further as inflation in the United States is far from the desired rate of 2%. Inflation in the United States economy softened sharply in June as lower prices of second-hand automobiles offset the impact of a marginal rise in gasoline prices.

Fed officials are consistently reiterating the need for two more interest rate hikes this year as inflation will take time reaching 2% in the face of a tight labor market. US core inflation is softening but at a slower pace due to resilient consumer spending.

Meanwhile, the US Dollar Index (DXY) has surrendered its entire gains after printing an intraday high of 101.40 as investors are awaiting the preliminary S&P Global PMI data for further guidance. According to the estimates, Manufacturing PMI increased marginally to 46.4 vs. the former release of 46.3. Services PMI dropped to 54.1 against the prior release of 54.4.

On the Japanese Yen front, mixed views are coming from top officials. BoJ Governor Kazuo Ueda cited that a dovish interest rate policy should be continued to maintain inflation steadily above 2%. While, Japan's top financial diplomat Masato Kanda suggested the central bank may tweak its approach to monetary stimulus at its next policy meeting, due to "signs of changes" in corporate behavior on wage growth and price rises, Reuters informed.