Dollar yen finally succumbed to profit taking in early European trade today as hawkish comments by Governor Fukui and firm consumer sentiment numbers convinced traders that the pair may have reached a short term top. Governor Fukui stated that CPI has shown a clear trend up in the latest quarter and that although the trend may yet take time to confirm, the data indicated that the Bank of Japan will eventually return to rate targeting. The statements were a clear attempt to prepare the market for a possible abandonment of the Zero Rate Interest Policy sometime in 2006 which has greatly hurt the yen in 2005 due to carry trade speculation. In other economic news our favorite sentiment indicator, the Eco Watchers survey * the man in the street poll of taxi drivers, barbers and waiters registered its highest reading in over 19 months reaching 52.9 versus 50.7 the month prior.  The forward looking result slipped a bit to 52.4 from 53.4 in October. Overall the reports suggested that the long awaited recovery of the Japanese consumer may be finally upon us. Tonight's reports are welcome news to long suffering yen bulls as the pair finally paused in its relentless march upward taking out yesterdays lows of 120.55. 

Across the pond the euro also perked up after testing support at 1.1700 during the Asian session. The unit verticalized to 1.1780 in matter of two hours in early European trade on the back of rumored East Asian and East European Central Bank buying and fairly hawkish comments by ECB Chief economist Otmar Issing who stated that ECB will act when necessary to ensure price stability * a not so subtle message to the markets that the Central Bank intended to protect its credibility and independence to combat any threat of inflation. With US eco calendar once again empty aside from weekly jobless claims numbers, it will be interesting to see if the dollar bull run has indeed hit a wall, as EUR/USD and USD/JPY try to make a possible run for  the 1.1800 and 120.00 figures respectively during the US session.

Boris Schlossberg is a Senior Currency Strategist at FXCM.