USD/JPY Faces Labour Market Test After Hawkish Repricing

USD/JPY traders received a much-needed boost last Friday when Fed Chair Kevin Warsh restored some of the Fed's inflation-fighting credibility.

This led to a sharp increase in pricing for a Fed rate hike this year, pushing USD/JPY to levels not seen since July. However, with US participation going eight months without rising and a historically long run without an increase, there is still uncertainty surrounding the Fed's next move.

The week ahead will be dominated by labour market data, including non-farm payrolls for August on Friday. Markets are expecting a 45,000 increase in payrolls after last month's decline of 23,000.

A combination of another soft payrolls report and rising unemployment would raise questions over whether the Fed should prioritize maximum employment alongside its inflation concerns.