USD/JPY softens to near 147.00 as Fed rate cut bets stay firm

• USD/JPY weakens to around 147.15 in Friday's early Asian session.
• US CPI inflation rises to 2.9% YoY in August as expected. 
• Uncertainty surrounding who will become the next Prime Minister could undermine the Japanese Yen and help limit the pair's losses. 

The USD/JPY pair attracts some sellers near 147.15 during the early Asian session on Friday. The US Dollar (USD) remains weak against the Japanese Yen (JPY) as US inflation reports support the case for the first interest rate cut by the Federal Reserve (Fed) since December 2024. The release of the University of Michigan Consumer Sentiment Index will be the highlight later on Friday. 

Data released by the US Bureau of Labor Statistics (BLS) on Thursday showed that the US Consumer Price Index (CPI) rose 2.9% YoY in August, compared to 2.7% in July. This figure came in line with the market expectation. On a monthly basis, the CPI inflation climbed to 0.4% in August from a 0.2% increase seen in July. The core CPI, which excludes volatile food and energy prices, increased 3.1% on a yearly basis in August, matching the estimate.

Markets are currently pricing in a 25 basis points (bps) rate cut at the conclusion of the Fed's September 17 meeting with near certainty, according to the CME FedWatch tool. The chance that the US central bank will cut by a half percentage point also edges higher. This, in turn, could exert some selling pressure on the Greenback in the near term. 

On the other hand, political uncertainty in Japan following Prime Minister Shigeru 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.