It's a lot easier for USD/JPY to rally when rising stock markets prevent safe-haven flows into the yen, which should continue until the next shakeout strikes. With the October fright seemingly over, USD/JPY can respond to rebounding Treasury yields, strong U.S. economic data nZON1YFH00 and hopes that concerted Chinese stimulus and stabilization efforts nB9N1WZ02D nL3N1XB1JD will work.
USD/JPY has already retraced 61.8 percent of its October slide at 113.34. Closing above there would target October's 114.55 peak. Caveats to a continued rally are numerous. A rapid a rise in U.S. rates could revive equities selling and ultimately reduce Fed rate-hike expectations.
The global equities rebound might reverse course if lack of progress in U.S.-China trade talks leads the U.S. to intensify import tariffs.
And, Chinese economic stabilization efforts nL3N1X43JC might not turn out to be as effective as hoped, leaving global growth at risk.
But while derisking is in remission, USD/JPY is a buy on dips below 112 and on a close above 113.34 with initial targets at 114 and 114.50.