Japan’s yen hit a fresh record low against the euro on Monday and fell against other high-yielding currencies as carry trades remained in favour.

Stronger-than-expected data did little to alter the market’s perception of Japan’s interest rate outlook – a key consideration for yield hungry investors, selling yen to fund purchases of higher yielding assets.

June’s 5.9 per cent surge in machinery orders was much bigger than market forecasts after rising by only 2.2 per cent in April.

Some analysts suggested that after the economy’s weakness in the first quarter, the data suggested growth was beginning to pick up again.

“These data add to reasons to expect a rate hike in the next month or so – most likely August,” said Adrian Foster at Dresdner Kleinwort.

The BoJ last made a move in February, lifting its overnight call rate by 25 basis points to 0.5 per cent. The bank’s monetary policy team meets tomorrow and is expected to keep rates unchanged.

In spite of the stronger data, the yen made little progress, hitting a record low against the euro at Y168.54. By midday in New York, it had clawed its way back to Y168.03, unchanged on the day.

But carry trades remained in favour, boosting higher yielding currencies. Britain’s pound hit a 15-year high, climbing 0.3 per cent to Y248.51, while the Australian dollar rose 0.4 per cent to Y106.19.

Derek Halpenny at Bank of Tokyo-Mitsubishi UFJ said: “The lack of yen buying in response to the machinery orders data is an indication that yen bears do not fear the prospect of an August rate hike.”

Sterling was lifted by growing signs of a margin squeeze for British manufacturers. Producer price inflation showed that while output prices rose by less than expected in June, costs to manufacturers rose to a six-month high.

“This maintains the incentive for manufacturers to try to raise prices to boost their margins,” said Howard Archer at Global Insight.

Against the dollar, the pound rose 0.2 per cent to $2.0151 and against the euro it climbed 0.3 per cent to £0.6761.

The dollar stayed flat in spite of Friday’s robust non-farm payrolls data, undermined by expectations that the Federal Reserve will keep interest rates on hold for the rest of the year.

“It’s noteworthy when the dollar cannot benefit from good data, and such developments tend to increase bearish sentiment,” said Robert Lynch at HSBC.

The euro was at $1.3628, little changed on the day, and within striking distance of its record peak of $1.3680 hit in April. The single currency benefited from strong German industrial production data. The dollar was flat against the yen at Y123.30.

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