USD/JPY remains on the defensive below 141.00 as bets firm on jumbo Fed rate cut

• USD/JPY rebounds to near 140.80 in Tuesday’s early Asian session. 
• The US Fed is widely expected to cut interest rates at the conclusion of its meeting Wednesday.
• Analysts see no change in rates at the BOJ meeting on Friday.

The USD/JPY pair recovers some lost ground near 140.80, snapping the five-day losing streak during the early Asian session on Tuesday. However, the upside of the pair might be limited amid the growing expectation that the US Federal Reserve (Fed) will start its easing cycle at the September meeting. Later this week, the US Fed and the Bank of Japan (BoJ) monetary policy meeting will be in the spotlight. 

The US Dollar (USD) remains under pressure as Fed easing expectations intensify. Fed Chair Jerome Powel signaled at the Kansas City Fed’s annual economic symposium in Jackson Hole last month that inflation had come under control just enough for the Fed to finally feel comfortable dialing back policy. Powell added that the job market’s fragile health is a key reason why the Fed is poised to act. 

The market ramps up expectations for a jumbo 50 basis points (bps) cut at the September Fed meeting on Wednesday, with nearly 67% odds pricing in, up from 50% last Friday. Ahead of the key interest rate decision from both the US and Japan, the US Census Bureau will release the Retail Sales report on Tuesday. The figure is estimated to increase by 0.2% MoM in August versus 1.0% prior. 

On the other hand, the BoJ is not expected to raise interest rates on Friday, but a majority of economists polled by Reuters expect a hike by year-end. Richard Kaye, a portfolio manager for Japan equities at Comgest, noted "The main determinant of the yen is the rate or yield gap with the U.S., and the main actor in that is the Fed, and the Fed seems ready to cut."