USD/JPY flat lines near 147.50 as Fed rate cut bets grow

• USD/JPY trades flat around 147.60 in Monday's early Asian session.
• The Fed is expected to cut its Federal Funds Rate for the first time since December.
• Political uncertainty in Japan could undermine the Japanese Yen. 

The USD/JPY pair holds steady near 147.60 during the early Asian session on Monday. The expectations that the US Federal Reserve (Fed) will deliver its first rate cut of the year this week could weigh on the US Dollar (USD) against the Japanese Yen (JPY). The NY Empire State Manufacturing Index for September is due later on Monday. 

A rise in the US Initial Jobless Claims and a modest increase in inflation kept investors focused on likely Fed interest rate cuts at its September meeting on Wednesday and beyond. Markets have fully priced in a September reduction and now expect three Fed rate cuts this year, compared to two just weeks ago. Fed Chair Jerome Powell and other policymakers signaled an easing of monetary policy despite inflation risks related to tariffs. A dovish tone from the Fed officials could undermine the Greenback in the near term. 

"The broader picture is still quite negative for the dollar on a variety of measures," said John Velis, Americas macro strategist at BNY in New York. "One, of course, is the Fed now beginning to cut rates. The other is, we still see hedging behavior taking place, so foreign investors buying U.S. assets and selling the dollar to hedge it, which is going to keep pressure on the dollar," added Velis.

On the other hand, Japan's Prime Minister Shigeru Ishiba announced his resignation, facing growing pressure after last year's election defeat and widening divisions within the ruling party. Political uncertainty in Japan following Ishiba's resignation could offer the Bank of Japan (BoJ) extra room to delay its next interest rate hike, especially if the next leader is concerned about borrowing prices rising too rapidly. This, in turn, could drag the JPY lower and create a tailwind for the pair.