Despite rising equity markets, steady yields, positive economic data and the prospect of a Fed rate hike in December USD/JPY has done nothing but slide lower over the past few weeks. What gives?

The problem for the pair is that the market remains skeptical about any further rate hikes in 2018. For now, the Fed funds futures curve is decidedly flat for 2018, with most traders concerned that the Fed will remain on the sidelines far into 2018 amidst the absence of any inflationary pressures.

A few weeks ago we noted that USD/JPY has decoupled from many of its correlations including those with bonds and equities. That generally suggests further trouble for the currency as traders ignore the past beneficial relationships and only focus on possible risks. Tomorrow the market will get a glimpse of FOMC minutes which could send the pair lower if they do not offer an unambiguously hawkish message. For now, the 111.50 support remains key — but a break there could usher in a tidal wave of selling all the way to 110.00