USD/JPY corrects from 145.00 as Fed’s rate cut expectations soar

• USD/JPY falls gradually to near 143.50 as rate cut expectations from the Fed deepen.
• Fed policymakers fear that resilience in the US economy could make price pressures sticky.
• The absence of dialogue on exiting ultra-loose policy by the BoJ forced investors to dump the Japanese Yen.

The USD/JPY pair corrects to near 143.50 amid expectations that the Federal Reserve (Fed) will start lowering borrowing interest rates earlier than projected by policymakers. The major faces a sell-off as Fed policymakers are failing to downplay rate cut expectations despite warnings that the achievement of price stability is the foremost priority.

S&P500 futures have added some losses in the European session, portraying a risk-off mood while the broader appeal is still bullish. The US Dollar Index (DXY) rebounds to near 102.40 but the pullback move could be considered as a selling opportunity by the market participants.

The USD Index is expected to remain broadly on backfoot despite the Fed has not declared an outright victory over inflation. Fear that resilience in the United States economy could make price pressures sticky is forcing Fed policymakers to maintain a restrictive stance on interest rates.

Going forward, investors will focus on the US core Personal Consumption Expenditure price index (PCE) for November, which will be published on Friday. Further softening of Fed’s preferred inflation tool is highly likely due to higher interest rates by the Fed.

Meanwhile, the Japanese Yen is performing better against the US Dollar despite an unchanged interest rate policy by the Bank of Japan (BoJ). The BoJ kept interest rates unchanged as expected but refrained from discussions about exiting the ultra-loose policy.