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Next stop for dollar-yen: 120?

After BOJ surprise, yen to hit 120 in 2015: ANZ

Dollar-yen rocketed to a seven-year high after the Bank of Japan stunned markets by expanding its quantitative easing program on Friday, and strategists say the pair has "a lot further to go."

The U.S. dollar rose 0.4 percent to 112.76 yen on Monday, extending Friday's near 3 percent rally, leading many strategists to recalibrate their outlook for the pair.

Khoon Goh, senior FX strategist at ANZ says dollar-yen could touch 115 by year-end and rise to 120 in 2015. Before the BoJ announcement, he didn't expect the pair to reach 115 until 2016.

"The BoJ has made it clear that it is prepared to do whatever it takes. This opens up the possibility that they could to more if needed, which would put further upward pressure on dollar-yen," said Goh.

Read MoreBOJ surprises with fresh stimulus, Nikkei surges 5%

After announcing an expansion of its stimulus program on Friday, the BoJ said it would continue easing as long as needed to achieve stable 2 percent inflation, reinforcing its commitment to reflating the world's third largest economy.

Another driver for the dollar-yen trade will be the $1.2 trillion Government Pension Investment Fund's (GPIF) new asset allocation targets, he said.

On Friday, the country's biggest pension fund said it plans to cut holdings of domestic bonds and raise investments in stocks. Under the new allocation guidelines, Japanese stocks and foreign stocks will account for 25 percent of the fund's holdings, up from 12 percent each previously. The fund will put 35 percent of its money in domestic bonds, down from 60 percent, while the ratio for overseas bonds will rise to 15 percent from 11 percent.

"An increase in allocation to overseas stocks and bonds should see further yen selling, " said Goh.

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The timing of the Federal Reserve's first rate hike is a wild card for dollar-yen. An earlier- than- expected rate hike could trigger the pair's next big move, he said.

The market has been pushing back Fed rate hike expectations, according to the October CNBC Fed Survey. Many investors expect liftoff in July 2015, a month later than in the September survey.

Read MoreMarket pushes back Fed rate hike expectations: Survey

David Mann, regional head of research, Asia at Standard Chartered Bank expects a similar trajectory for dollar-yen.

"I think we can easily see 115 in the very short-term actually. We're more worried about the potential of testing 120 sooner rather than later, before year-end," Mann said.

Slow and steady

However, Nizam Idris, managing director and head of strategy, fixed income and currencies of Macquarie Bank expects the rise in dollar-yen to be more gradual, targeting 115 in six months.

Read MoreBoJ bazooka to spark currency war

"The BoJ was going for the surprise element. They wanted the immediate reaction to be huge, and that's what they got," he said.

The policy announcement appears to be largely priced in, but the yen will continue to weaken gradually against the dollar driven by diverging monetary policy between Japan and the U.S., Idris said.

"I don't think Japan would want to see 115, 120 immediately. A gradual move allows importers to adjust and put in place a hedging strategy," Idris said.

"Also, we have to remember, dollar-yen was at 80 just two years ago. It has moved quite a lot already."