USD/JPY dips toward 148.50 as US Dollar declines on government shutdown risks

• USD/JPY loses ground as traders adopt caution amid concerns over a possible US government shutdown.
• A shutdown could begin on Wednesday if President Trump and congressional leaders fail to reach a deal on Monday.
• Japan's October 4 LDP leadership election could postpone the BoJ's next rate hike if a dovish candidate wins.

USD/JPY extends its losses for the second successive session, trading around 148.70 during the early European hours on Monday. The pair depreciates as the US Dollar (USD) faces challenges due to concerns over the possible shutdown of the United States (US) government.

US President Donald Trump is scheduled to meet congressional leaders on Monday to discuss government funding. The shutdown could begin on October 1 in case of no deal, which will also coincide with new tariffs on trucks, pharmaceuticals, and more. The standoff could also delay the September payrolls report and other key data, per Reuters.

The USD/JPY pair depreciates as the Greenback loses ground after the US August inflation report boosted the likelihood that the US Federal Reserve (Fed) will likely deliver another interest rate cut in October. Markets are now pricing in nearly an 88% chance of a Fed rate cut in October and a 65% possibility of another reduction in December, according to the CME FedWatch Tool.

In Japan, traders will likely observe the Bank of Japan (BoJ) Summary of Opinions and August Retail Trade data due on Tuesday. BoJ July minutes signaled policymakers remain open to further rate hikes if growth and inflation stay on track.

The Japanese Yen (JPY) may struggle amid political uncertainty in Japan. Japan's Liberal Democratic Party (LDP) leadership election on October 4 could delay the BoJ's next rate hike if a dovish candidate prevails.