Trade-war risk aversion has put USD/JPY's proxy status as a risk gauge in sharper focus.
As it reflects back the sense of danger rising in equities and other currency pairs, those markets will determine how far USD/JPY falls.
Derisking forced the S&Ps 500 to open below its pivotal 50-DMA and a major upside breakout in USD/CNH.
Unsurprisingly, USD/JPY has dropped below March's correction low .
Fears of U.S.-China trade war escalation also extended CNY/JPY's slide toward a break of 50 percent of this year's post-flash-crash recovery .
The post-flash crash rebound in global assets was premised on trade compromise and therefore now seems at risk.
Yen-funded reflation trades and USD/JPY's rally was based on the Fed keeping rates steady and still attractively above negatively yielding JGBs, but trade fears are forcing U.S. yields lower and renewed pricing in of Fed cuts and Treasury curve inversion risk.
If S&Ps break 200-DMA support at 2,775, as the VIX surges, selling of S&Ps and USD/JPY will intensify .
And the surge in one-month USD/JPY vols off all-time lows in April will make short-yen carry trades even less attractive and USD/JPY's 104.10 flash-crash low a potential target.