Asian volatility supports yen

The yen strengthened again in Asian trading on Thursday with gains to 117.65 against the dollar as Asian stock markets fell. The strong Chinese data and drop in the Chinese stock market late in Asia supported the yen as there was a further unwinding of carry trades with risk aversion levels rising.

The Japanese economic data was stronger than expected with the tertiary index which measures services sector performance, rising 1.0% in February to give a 1.9% annual increase, the strongest performance for 19 years.

There has been further speculation that the Bank of Japan will increase interest rates again in May and the Bank of Japan economic survey will be watched closely next week for further evidence on the bank's expectations. The monthly Tankan survey of business confidence also rose to a 3-year high.

The latest capital account data recorded a further net inflow into Japanese equities, although the overall capital account recorded net outflows.