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* Dollar hits 2 1/2-yr high, euro touches 21-month high vs yen
* Dollar faces strong resistance at 90.695
By Lisa Twaronite
TOKYO, Jan 25 The yen fell to a 2 1/2-year low against the dollar and a 21-month low against the euro in early Asian trading on Friday after data showed Japan remains entrenched in deflation, keeping pressure on the Bank of Japan to take more steps to meet its inflation target.
Japan's core consumer prices fell 0.2 percent in December from a year earlier, down for a second straight month, and a far cry from the central bank's new price goal.
The BOJ on Tuesday doubled its inflation target to 2 percent and made an open-ended commitment to buying assets from next year.
"The BOJ should continue to ease aggressively under political pressure," said Masashi Murata, a currency strategist at Brown Brothers Harriman in Tokyo.
At the same time, the government of Japanese Prime Minister Shinzo Abe continues to push for a weaker currency.
"Under these expectations, the market could have kind of a safety mode to sell more yen," Murata said.
The Japanese price data was less significant for currency markets than Thursday's U.S. economic data, which contributed to the yen's weaker tone in Asian trading, he said.
A report showing that new claims for jobless benefits fell to a five-year low last week lifted U.S. bond yields, which in turn helped lift the dollar against the yen.
The dollar rose about 0.2 percent from U.S. trading to 90.45 yen, after climbing as high as 90.695 on the EBS trading platform in morning trade, its strongest level since June 2010.
Strong resistance was cited at 90.70 yen. Wave analysis suggests that the U.S. unit is in its fifth wave from the 79.07-yen low in November, with the 90.70-91.60 yen area seen as the likely zone from which a deeper correction to the entire rally could follow.
The yen came under renewed pressure on Thursday after reports quoting Japan's deputy economy minister, Yasutoshi Nishimura, as saying the yen's decline is not over, and that a dollar/yen level of 100 would not be a concern. Nishimura was also quoted as saying that the dollar would only add to domestic import costs if it rose to around 110-120 yen.
The yen was also undermined by comments on Thursday from Abe, who said he expects the Bank of Japan to achieve its inflation goal as soon as possible.
The euro rose 0.1 percent against the yen to 120.91 yen , after rising as high as 121.320 yen on EBS, its highest since April 2011.
Against the dollar, the euro was steady at $1.3371.
The yen's precipitous descent since late last year has not escaped the attention of the global community, with German Chancellor Angela Merkel singling out Japan on Thursday as a source of concern.
"I don't want to say that I look towards Japan completely without concern at the moment," Merkel said at the World Economic Forum in Davos, when asked whether currency manipulation risked distorting competition.
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