USD/JPY Rallies as Fed Credibility Gains Traction

The US dollar yen exchange rate, USD/JPY, has seen a sharp increase in recent days following Fed Chair Kevin Warsh's speech that restored some of the Federal Reserve's inflation-fighting credibility.

The data flow for the week ahead will be dominated by labour market indicators, including non-farm payrolls for August on Friday, which is expected to show an increase of 45,000 after a decline of 23,000 in July.

The unemployment rate is seen ticking up to 4.2% from 4.1%, but the participation reversal risk remains as labour-force participation has now gone eight consecutive months without an increase, matching the longest such run since 1948.

A combination of another soft payrolls report and rising unemployment would raise questions over whether the Fed should be paying greater attention to the maximum employment side of its dual mandate.