Japanese yen weakened slightly against the dollar in Asian trade today hobbled by stubbornly persistent deflationary consumer price data. The Japanese CPI releases revealed that consumer prices are indeed finally stabilizing but have not yet shed the deflationary pressures that have dogged the country for the better part of the last decade. Tokyo CPI results which lead the national averages by a a few months showed 0.0% month over gain but slipped -0.3% on a year over year basis vs. expectations of -0.2% decline. Overall the news suggests that a state of mild deflation persists in the Japanese economy, leading most market participants to conclude that Bank of Japan is unlikely to remove its ultra accommodative monetary policy anytime soon. As a result the yen traded back above the 119 figure and it is quite possible that the pair may hit the 120 level by next week as our contrarian speculator sentiment index has once again moved to extreme levels with 3 yen longs for every 1 dollar long. As long as traders continue trying to pick a top in this move and as long as Japanese authorities refuse to tighten monetary policy the dollar yen carry trade will march onward and upward.

Meanwhile the euro continued its slow slide against the greenback in a quiet session in Europe today, dogged by yesterday's disappointing IFO results. Today's economic data was a bit more positive with Italian business confidence reaching the highest reading in over a year but the news sparked little buying as traders reconciled themselves to the fact that the planned December rate hike by the ECB is likely to be a one-off event given the fragile state of recovery in the Euro-zone and will not be enough to stem the growing interest rate differentials between the euro and the greenback.

The most interesting news of the night was generated by the Swiss franc, where the KOF index of leading indicators once again produced a massive upside surprise skyrocketing to 1.12 against expectations of .85. The data confirms the fact that Swiss growth is significantly outpacing the Euro-zone recovery. In reaction to the news the EUR/CHF cross, typically one of the least volatile pairs in FX,  collapsed by 35 points in less than a hour as traders plowed into the Swissie

Boris Schlossberg is a Senior Currency Strategist at FXCM.