Japanese shares touched a 34-year peak on Tuesday, while the dollar held steady, keeping the yen perilously close to 150 per dollar level ahead of a key U.S. inflation report that could help shape the Federal Reserve’s rates outlook.

Bitcoin remained strong after crossing $50,000 for the first time in over two years, thanks to inflows into exchange traded funds backed by the digital asset. It was last at $49,897.

Japan’s Nikkei continued to advance, climbing to 38,010 on Tuesday, not far from the record high of 38,957 the benchmark touched on Dec. 29, 1989. The Nikkei has gained more than 13% so far this year, after rising 28% in 2023.

The surge has been driven by foreign investors flocking to the market attracted by low valuations and changes in corporate governance, while a weakening yen this year has provided a further boost.

China’s financial markets are closed for the Lunar New Year holiday and will resume trade on Monday, Feb. 19, with Hong Kong markets due to resume on Feb. 14, leaving trading in rest of Asia subdued. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.11%.

Futures indicate European bourses are due to open lower with the Eurostoxx 50 down 0.36%, German DAX futures 0.26% lower and FTSE futures up 0.01%. E-mini futures for the S&P 500 fell 0.13%. Investor attention this week will be on crucial reports on January’s U.S. Consumer Price Index (CPI), due later in the day, and the Producer Price Index, scheduled to be released on Friday.

A slew of recent data, led by strength in the labour market, has underlined the resilience of the U.S. economy and pushed traders to scale back expectations of early and deep interest rate cuts from the Fed.

Markets have all but chalked off chances of a rate cut in March, with traders pricing in a 13% chance of an easing compared with 77% a month earlier, the CME FedWatch tool showed.

“It’s only a matter of time before the Fed reduces rates and we think that this should start around the middle of this year,” said Vasu Menon, managing director of investment strategy at OCBC Bank in Singapore.

“Rate cuts should be good for stock markets provided we do not see a hard landing in the US economy. The good news is that economic data so far seems to support this prognosis.”

Economists polled by Reuters expect the CPI to rise 2.9% on a year-on-year basis, down from 3.4% in the previous month, with annual core CPI inflation also expected to slow to 3.7% in January from 3.9% a month earlier.

However, there is risk of an upside surprise, which could nudge yields higher and further strengthen the dollar, according to Charu Chanana, head of currency strategy at Saxo.

“May rate cut probability is around 70%, and there appears room to push that further to June with markets remaining sensitive to hawkish surprises for now.”

Traders are still pricing in 111 basis points of cuts this year versus 75 bps of easing projected by the Fed.

The yield on 10-year Treasury notes was at 4.181%. The dollar index, which measures the U.S. currency against six rivals, was little changed at 104.20.

The Japanese yen, which is sensitive to U.S. rates, was last at 149.55 per dollar, not far from the closely-watched 150 level that analysts said would likely trigger further jawboning from Japanese officials in an attempt to support the currency. [FRX/]

The yen has fallen more than 5% against the dollar year-to-date, with yen bears emboldened by signs the Bank of Japan will resist aggressively hiking rates even if it exits negative interest rates this year as markets are wagering.

In commodities, U.S. crude futures rose 0.18% to $77.06 per barrel and Brent futures were at $82.08, up 0.1% on the day. [O/R]

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