Risk aversion will continue to support the yen, although at least a limited correction is realistic after rapid gains.
The yen pushed to a high of 106.65 against the dollar after the US data on Tuesday as Wall Street dipped sharply before settling close to 107.0. There was buying support on any retreats and the yen strengthened to a 30-month high near 106.0 in Asia on Wednesday.
Risk aversion remained at elevated levels with the Nikkei index continuing the trend of falling stock markets. With volatility levels also higher, there will be greater caution over carry trades which will help underpin the yen.
The Japanese machinery orders was slightly stronger than expected with the decline held to 2.8% for the month while wholesale prices were higher. Japan will not be immune to fears of weaker growth at the same time as higher inflationary pressure with consumer confidence at a 5-year low.
Markets will be on high alert over protests against yen strength from Japanese officials. A lack of comment would increase speculation that further yen gains will be tolerated by Japan and volatility levels will remain higher in the short term.