USD/JPY Breakout as Hawkish Repricing Takes Hold

The USD/JPY currency pair has finally shown some life after a historically quiet period in August, thanks to Federal Reserve Chairman Kevin Warsh's speech last Friday. In his address, Warsh made it clear that the Fed's focus remains on price stability, but also noted that inflation is too high and may require action if it doesn't subside soon.

This sparked a significant increase in pricing for a Fed rate hike this year, pushing USD/JPY to levels not seen since July. With markets now 50-50 on a September hike, the question isn't just whether the Fed will resume tightening, but also whether it could mark the start of a broader cycle rather than a single mid-cycle adjustment.

The upcoming week's data flow, including non-farm payrolls for August on Friday, will be crucial in determining this. The jobs report looms as the key test to see if the US labor market is stable, with participation rates expected to increase by 45,000 after falling in July. Another soft payrolls report accompanied by rising unemployment would raise questions over whether the Fed should focus more on maximum employment.