While the US dollar is losing its positions on the foreign exchange market, the yen continues to strengthen amid the rising demand for safe-haven assets. The flow of negative macroeconomic data from Japan itself, lower chance for the raise in the interest rates in the US in the coming months, as well as the upcoming referendum in the UK are pushing USD/JPY pair further down. The UK is the country with the fourth largest direct investments from Japan. In 2015, the volume of investments in the country amounted to 10.4 trillion yen.
It is difficult to predict the volume of currency flows between the UK and Japan, or between the euro zone and Japan in case the UK exits from the EU.
The scale of movement of EUR/JPY, GBP/JPY currency pairs in this case can not be predicted. It is clear that the yen will significantly strengthen in the case of such a decision, including USD/JPY pair.
Since the opening of the day USD/JPY pair has lost almost 60 points, since the beginning of the month - nearly 430 points, which has offset the growth of the pair in May almost completely. The Japanese stock index Nikkei Stock Average ended the day down by 1.0%.
According to the data presented today, orders for machinery and equipment in Japan in April were at -11.0% (with forecasted -3.8%), -8.2% y-o-y.
Strengthening of the yen and declining inflation naturally concern the Bank of Japan. According to today's words of Deputy Governor of the Bank of Japan Nakaso, end of deflation in Japan through the «decisive» softening is «absolutely necessary».
USD/JPY pair came close to May and year lows near the level 105.50. One should be careful when selling the pair at current levels. There is a chance of a sharp rebound. However, after the completion of a possible upward correction, return to short positions in USD/JPY pair will once again become relevant.
Today we are expecting data on initial jobless claims for last week in the US (forecast - 270,000 claims). If the data published at 14:30 (GMT 2) is better than expected, the US dollar may strengthen on the currency market, including in USD/JPY pair, and vice versa.