The yen will continue to gain support if risk appetite deteriorates, especially if there is any evidence of renewed credit-related stresses. The disappointing Japanese data will have a mixed impact as the lack of confidence in the domestic economy will be offset by the negative impact on international risk appetite. There is still likely to be increased US currency support below the 95 level and there should be firm near-term dollar support at the 94 level.

The dollar was unable to regain the 95.50 level during Tuesday and retreated again in New York with a drop to below the 95.0 region, undermined by reports of BIS sell orders and a further slide on Wall Street.

The Japanese core machinery orders data was significantly weaker than expected with a 3.0% decline for May following a 5.4% decline the previous month and this pushed orders to the lowest level for over 20 years. Although there was some recovery in key manufacturing orders, thee was evidence of a notable deterioration in the services sector. The data will increase fears over the wider economy and will maintain pressure for the quantitative easing programme to be extended.

The data also sparked a further deterioration in risk appetite and this helped push the yen stronger with the currency strengthening to a six-week high against major currencies as the Nikkei index also weakened to the lowest level since late May. The dollar hit lows near 94.10 in early Europe on Wednesday.