Japanese Machinery Orders skyrocketed by 8.2% on a month over month basis versus expectations of only a 2.5% gain but USD/JPY barely budged dropping only 15 points on the news.  Nevertheless the data should provide ample ammunition to the arguments of yen longs that Japanese economy has truly turned the corner and will now  generate materially better performance in the 4th quarter of this year.

Japanese manufacturers, highly efficient after a decade of cost cutting and financial restructuring are well on their way to becoming the predominant global brands in a variety of key industries. Witness Toyota which may soon overcome General Motors as the largest automobile manufacturer in the world.  The news tonight suggests that Japan may be moving to a new level  in its development. Going forward, the country's future economic growth may not be so heavily dependent on US consumer market alone but rather on its business prowess across the whole globe.  Indeed US is now Japan's second largest export market having been replaced by China.

Adding to tonight's good news was our favorite Japanese economic report - the Eco Watchers survey. This measure of "man in the street" sentiment from barbers, taxi drivers and waiters, rose to 51.7 from 50.8 projected. The larger than expected gain suggests that Japanese Household spending, boosted by firm employment data should improve going forward.   

Despite the positive results, USD/JPY remains weighed down by the twin burdens of higher oil and steep carry costs.  While we do not believe that BOJ will move anytime soon to amend its Zero Interest Rate policy, the prospect of lower oil prices can easily galvanize yen bulls to spur a rally in the pair.  A move below the $60 bbl handle should help USD/JPY to move back towards the $110 level, especially as more capital continues to pour into the Nikkei.

Boris Schlossberg is a Senior Currency Strategist at FXCM.