USD/JPY tumbles below 146.50, all eyes on Fed rate decision
- USD/JPY weakens near 146.45 in Wednesday’s early Asian session.
- The Fed is widely expected to cut the interest rate by 25 bps at its September 2025 meeting on Wednesday.
- Political uncertainty in Japan could weigh on the Japanese Yen.
The USD/JPY pair remains under some selling pressure around 146.45 during the early Asian session on Wednesday. The US Dollar (USD) weakens against the Japanese Yen (JPY) as investors continue to assess the likelihood of extra interest rate cuts by the Federal Reserve (Fed) in the next few months.
Investors appear to be unwinding long-USD positions ahead of the Fed interest rate decision on later on Wednesday. Markets are fully priced in that the Fed will cut the interest rates by 25 basis points (bps) at its September meeting, the first reduction since December, with some still hoping for a greater 50 bps cut, according to the CME FedWatch tool.
“Expectations of a 25-basis-point rate cut are largely baked into the cake at this point,” said Peter Grant, vice president and senior metals strategist at Zaner Metals, adding that there could be one or two more rate reductions before the year-end.
Traders will closely monitor the FOMC Press Conference and a Summary of Economic Projections (SEP), or ‘dot plot,’ for some hints about the US interest rate path. Any dovish tone from the Fed officials could undermine the Greenback in the near term.
On the other hand, Japanese Prime Minister Shigeru Ishiba's resignation added a layer of uncertainty in the markets and could fuel uncertainty over the likely timing and the pace of interest rate hikes by the Bank of Japan (BoJ). This, in turn, could drag the JPY lower and help limit the pair’s losses.
The Japanese central bank is expected to keep interest rates steady on Friday. Markets are looking to BoJ Governor Kazuo Ueda's post-meeting press conference for signals on when the BoJ will begin rate hikes, which have been paused since January while officials assess the impact of tariffs.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.