New reports suggest that Microsoft is preparing to drop the price of its Xbox console to 16,800 Yen (€133) in Japan next month, in a move which will give the hardware a significant price edge over the PS2 in time for Christmas.

According to German news website GameFront.de, the company will roll out consoles at the new price point on November 20, alongside a new Xbox bundle for Project Gotham Racing 2 which will feature a console, a DVD playback kit, two months free on Xbox Live and copies of PGR2 and Halo for 19,800 Yen (€157).

At present, the Xbox is priced at 24,800 Yen in Japan (€196), about the same price as Sony's PlayStation 2. A quick scan of prices at some of the country's biggest consumer electronics retailers revealed the PS2 selling at Y24,800 (€196), the Xbox at Y23,800 (€188) and Nintendo's GameCube Enjoyment Pack, which includes a Cube and a GameBoy Advance Player peripheral, at Y18,800 (€149).

In other territories, including Europe, Microsoft has stated that it will hold firm at its current price point this Christmas, preferring to offer the Xbox as part of software bundle deals rather than dropping the price of the console itself outright.