The USD/JPY pair is falling significantly to near 149.70 during North American trading hours on Tuesday. The pair tumbles as the Japanese Yen (JPY) outperforms its peers on expectations that the Bank of Japan (BoJ) will raise interest rates again this year.

BoJ Governor Kazuo Ueda signaled on Monday that monetary policy adjustments would become appropriate if the central bank achieves its 2% inflation target. Meanwhile, optimism about more wage hikes has also boosted BoJ hawkish bets. Last week, Japan's largest trade union group, Rengo, showed that firms agreed to raise pay growth by 5.4% this year.

Meanwhile, the US Dollar (USD) declines sharply as investors expect United States (US) President Donald Trump's tariff agenda will be less impactful than previously anticipated. Trump said on Monday that he may give a "lot of countries" breaks on tariffs. The limited scope of the tariff war diminishes the safe-haven appeal of the US Dollar. The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, falls sharply to near 104.00 after failing to extend its upside above 104.50.

On Monday, the US Dollar gained sharply after the release of the flash S&P Global Purchasing Managers' Index (PMI) data for March, which showed that robust service sector activity contributed significantly to a strong uptick in the Composite PMI. The Service PMI, which accounts for activities in the services sector, came in at 54.3, significantly higher than estimates of 51.2 and 51.0.

This week, investors will focus on the US Personal Consumption Expenditure Price Index (PCE) data for February, which will be published on Friday. Investors will pay close attention to the inflation data as it is the Federal Reserve's (Fed) preferred inflation gauge and will likely influence market speculation for the monetary policy outlook.

Source: Fxstreet