USD/JPY corrects below 142.00 ahead of Fed verdict

• USD/JPY slides below 142.00 as firm speculation for Fed large interest rate cuts weighs on the US Dollar.
• Market participants expect the Fed to cut interest rates by 100 bps this year.
• Investors expect the BoJ to maintain interest rates steady at 0.25% on Friday.

The USD/JPY pair drops below 142.00 in Wednesday's European session. The asset faces selling pressure after a recovery move to near 142.47 as the US Dollar (USD) slumps ahead of the Federal Reserve's (Fed) monetary policy announcement at 18:00 GMT.

The market sentiment remains cheerful as the Fed is almost certain to start reducing interest rates. S&P 500 futures have posted decent gains in European trading hours. The US Dollar Index (DXY), which tracks the greenback's value against six major currencies, falls back to near 100.70 from Tuesday's pullback move to 101.00. However, 10-year US Treasury yields jump above 3.67%.

While the Fed is poised to cut interest rates, investors will keenly focus on the potential rate cut size and the dot plot, which shows where policymakers see Federal Fund rates heading in short and long term.

According to the CME FedWatch tool, the likelihood of the Fed reducing interest rates by 50 basis points (bps) to 4.75%-5.00% has increased to 63% from 14% a week ago. For the year-end, traders expect that the Fed will cut interest rates by 100 bps. This suggests that the Fed will cut interest rates by 50 bps in one of its three meetings remaining this year.

In Asia, the Japanese Yen (JPY) will be influenced by the Bank of Japan's (BoJ) monetary policy decision on Friday. The BoJ is widely anticipated to leave interest rates unchanged at 0.25%, with a hawkish guidance due to steady economic growth and the stability of inflation above 2% for the straight 21 months.

Last week, BoJ policymaker Naoki Tamura projected interest rates to rise at least 1% as early as the second half of the next fiscal year. 

Meanwhile, Japan's economic assessment report for September, released on Wednesday, showed that the economy is recovering moderately although it is still pausing in parts, Reuters reported.