USD/JPY SKIDS BELOW 133.50, UPSIDE LOOKS FAVORED AS BOJ SUPPORTS EXPANSIONARY POLICY

USD/JPY has slipped below 133.50 amid a steep correction in the USD Index.

The proportion of correction in the USD/JPY pair is much less than the corrective move in the USD Index.

BoJ Ueda is reluctant to approach a sudden normalization of monetary policy as it would cause a big impact on the Japanese economy.

The USD/JPY pair has corrected below the critical support of 133.50 in the Asian session after a stellar upside move to near 133.87. The corrective move in the asset is a trace of correction in the US Dollar Index (DXY), which took place after an improvement in the risk appetite of the market participants.

It is worth noting that the proportion of correction in the USD/JPY pair is much less than the corrective move in the USD Index, which indicates weakness in the Japanese Yen. Japan’s domestic currency went through significant offers on Monday after a dovish commentary from novel Bank of Japan (BoJ) Governor Kazuo Ueda.

BoJ Ueda said on Monday that the central bank is reluctant to approach a sudden normalization of monetary policy as it would cause a big impact on the Japanese economy, as reported by Reuters. The commentary has supported the continuation of ultra-loose monetary policy for an extended period as the global economy is going through a rough phase due to the banking crisis. He also added, "Fully aware that global economy is slowing and a further slowdown is expected." Also, the strengthening of wage growth is supporting inflation to reach its target sustainably.

Meanwhile, S&P500 futures have added further gains after minor additions on Monday, portraying further improvement in the risk-taking ability of the market participants. The US Dollar Index (DXY) has extended its correction sharply below 102.50 as investors have digested the expectations of further policy-tightening by the Federal Reserve (Fed).