The aftermath of the FOMC's not-dovish-enough rate hike Thursday has been a steep drop in Treasury yields and stocks that is causing sizeable spec USD/JPY longs to capitulate as prices cascade below crucial supports.
Though stocks and Treasury yields have stabilized, USD/JPY continues its descent toward October's 111.38 low in what looks like the start of another major slide along the lines of the 8 percent plus drops from the December 2016 and November 2017 peaks.
If so, USD/JPY could retest March's 104.56 lows.
While derisking flows tend to favor the dollar broadly while they are incipient, they reduce the USD's allure afterward as U.S. rates decline versus limited changes in BOJ-stultified JGB yields.
Markets are pricing in no rate hikes next year and 12.5 bp of cuts in 2020 versus the average FOMC dot plots for two hikes in 2019 and one more in 2020.
The bigger problem for wrong-footed IMM USD/JPY longs and other bulls is that investor confidence is fading amid year-on-year losses in stocks and multi-year losses in credit spreads and the carry on FX trades being too small to offset price declines.