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.