USD/JPY Jumps as Warsh's Speech Reignites Hawkish Sentiment

The USD/JPY exchange rate has seen a significant increase after Fed Chair Kevin Warsh's speech last Friday, which restored some of the Fed's inflation-fighting credibility.

The market is now pricing in a higher likelihood of a Fed rate hike this year, with September being a 50-50 bet. This hawkish repricing has pushed USD/JPY to levels not seen since July.

However, the upcoming labour market data, particularly the August non-farm payrolls on Friday, may challenge this hawkish reset. The jobs report will be closely watched to see if it confirms the stability of the US labour market, as suggested by Warsh's speech.

The participation rate has been declining for eight consecutive months, which could lead to a higher unemployment rate. A soft payrolls report accompanied by rising unemployment would raise questions about whether the Fed should focus more on maximum employment.