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Forex - USD/JPY drops after Tokyo official warns on currency weakness

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Shutterstock photo - The dollar dropped against the yen on Tuesday after Japanese Economy Minister Akira Amari warned that weakening the Japanese currency too much could have adverse effects on the economy.

In U.S. trading on Tuesday, USD/JPY was trading at 88.65, down 0.92%, up from a session low of 88.29 and off a high of 89.63.

The pair was likely to find support at 86.84, the low from Jan. 8, and resistance at 89.64, Monday's high.

The yen has weakened in recent sessions due to dovish comments made by Japanese Prime Minister Shinzo Abe, who has sought to double the country's inflation target to 2% and has added that he will name a Bank of Japan chief who supports his calls for looser monetary policies.

Current Bank of Japan Governor Masaaki Shirakawa's term ends in April, and expectations that a replacement will favor Abe's calls for looser policy and greater tolerance for inflation sent the yen diving in recent sessions.

Yet the currency shot back up against the greenback after Amari surprised markets by saying that imports and the broader economy could suffer if the yen slides too far.

Meanwhile in the U.S., the Commerce Department reported that retail sales rose 0.5% in December, far outpacing expectations for a 0.2% gain, which weakened the dollar as investors took on risk.

A separate report showed that producer prices in the U.S. fell 0.2% last month compared to expectations for a 0.1% decline.

The dollar did see demand on fears that markets may roil as the U.S. government approaches its USD16.4 trillion debt ceiling, likely sometime by late February.

President Barack Obama on Monday urged Republicans to agree to lift the borrowing limit though he stopped short of offering concrete concessions in return, sparking fears the brinkmanship that marked the 2011 debt ceiling debates will return next month.

Also in the U.S., the Empire State manufacturing index declined to -7.8 in January from a reading of -7.3 in December.

Analysts had expected the index to improve to 2.0 this month.

The yen, meanwhile was up against the pound and up against the euro, with GBP/JPY down 0.97% and trading at 142.47 and EUR/JPY trading down 1.25% at 118.25.

On Wednesday, the U.S. will release government data on consumer inflation, industrial production and capacity utilization.

The country will publish official data on crude oil stockpiles, while the Federal Reserve is to publish its Beige Book, which analyzes current economic conditions. - offers an extensive set of professional tools for the Forex, Commodities, Futures and the Stock Market including real-time data streaming, a comprehensive economic calendar, as well as financial news and technical & fundamental analysis by in-house experts.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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