Japanese yen steady as producer price inflation unchanged

The Japanese yen continues to have a quiet week.  In the European session, USD/JPY is trading at 149.68, down 0.01% on the day.

The yen has shown recent strength against the US dollar and gained 2% last week.  On Monday, the yen strengthened to 148.84 per dollar, its strongest level this year.

The Bank of Japan meets on March 18-19 and once again the markets will be in suspense ahead of the decision.  The BoJ is expected to hold rates but there is a slight possibility of a rate hike. Inflation has been moving higher and yields on 10-year Japanese government bonds have been climbing and hit 1.455% last week, the highest level since Nov. 2009.

Last week, Japan's core CPI hit rose to 3.2% in January, the highest level in 19 months. On Tuesday, the services producers price index jumped to 3.1%, up from 2.9% in December and in line with expectations. This will be followed by BoJ Core CPI on Wednesday and Tokyo Core CPI on Friday.

The BoJ has been an outlier amongst central banks as it has embarked on a tightening cycle. Every rate hike has had a strong impact on the financial markets but it's important to remember that rates remain very low in Japan, at just 0.50%. The BoJ is expected to continue raising rates but the hikes will be gradual and the cash rate will remain much lower than in other central banks.

The BoJ is in no rush to raise rates and the threat of US tariffs has stoked concerns about higher inflation and lower global growth. The central bank will be carefully monitoring US trade policy and if the US imposes further tariffs, the BoJ is more likely to put plans to hike rates on ice.

• USD/JPY tested support at 149.48 earlier.  Below, there is support at 149.09
• 150.12 and 150.51 are the next resistance lines