USD/JPY's rebound triggered by Friday's strong nonfarm payrolls report faces limits ahead of the U.S. CPI report Thursday, especially as markets brace for fresh trade action from the White House on China nL3N1VW3CC.
The options market and IMM spec positioning have a bearish bias, but if the CPI and retail sales reports reinforce rising Treasury yields it will take a greater amount of trade and EM weakening fear to nullify yield-spread-driven USD demand.
There is also a significant portion of the markets that believes the U.S. and China will eventually reach a trade agreement, thus limiting the intensity of risk-off JPY buying on trade concerns.
But firmer Fed tightening expectations, the ECB ending QE, stealth QQE tapering by the BOJ and the U.S.-led trade war will weigh on yen-funded carry trades.
USD/JPY's sell-off since July's 113.18 high by long-term resistance has priced in some of this risk.
Technically, a close above 111.88 -- 61.8 percent of the July-Aug drop -- or below the 100-DMA, last at 110.55 and overlapping 61.8 percent of the late August rebound, is needed to break the stalemate in prices.