USD/JPY Surges on Fed Hawkish Reset, Payrolls Data to Test Market Expectations

The USD/JPY pair has finally shown signs of life after a historically quiet period. The recent speech by Fed Chairman Kevin Warsh at Jackson Hole helped to restore some credibility to the Federal Reserve's inflation-fighting efforts, leading to an increase in pricing for a rate hike this year.

Markets are now 50-50 on a September hike, with the US labour market data flow taking center stage. The August non-farm payrolls report will be closely watched, as it could challenge the hawkish repricing seen since Jackson Hole.

A decline in participation has helped drag the unemployment rate lower despite continued softness in hiring, raising questions about whether the Fed should pay greater attention to the maximum employment side of its dual mandate.

Fed Governor Christopher Waller's speech on Thursday will also be an important event, as he is known for generating volatility across markets. His views may not align with Warsh's hawkish tone, and could potentially challenge the market's expectations.