Dow Jones & Nasdaq 100 Steady as Yen Weakness Lifts Risk Assets
Bullish Medium-Term Outlook Hinges on Fed and BoJ Cues
In my opinion, the short-term outlook remains bullish given the alignment of fundamentals and technical indicators. Meanwhile, expectations of an incoming Fed Chair supporting loose monetary policy reinforce the positive medium-term outlook.
This week, US President Trump posted on the Truth Social platform:
“I want my new Fed Chairman to lower interest rates if the market is doing well, not destroy the market for no reason whatsoever. […] The United States should be rewarded for SUCCESS, not brought down by it. Anybody that disagrees with me will never be the Fed Chairman!”
Nevertheless, several scenarios would likely unravel the positive medium-term outlook, including:
- BoJ declares a neutral interest rate of between 1.5 and 2.5% and signals multiple rate hikes, triggering a yen carry trade unwind.
- Better-than-expected US data and hawkish Fed chatter temper expectations of a Fed rate cut.
Conclusion: Outlook Bullish
In summary, a strong US economy, expectations of further rate cuts, the AI race, and a less hawkish BoJ reinforce the bullish short- to medium-term outlook for US stock futures.
Meanwhile, traders should closely monitor USD/JPY trends, yen intervention warnings, and the Nikkei 225. Intervention threats and hawkish BoJ rhetoric could drive JGB yields higher and USD/JPY lower, challenging the constructive bias.
This week, Japan’s Finance Minister Satsuki Katayama warned action against excessive forex movements ahead of the inflation figures, sending USD/JPY to a low of 155.553.
Key levels include a USD/JPY break below 150 and 10-year JGB yields climb to the December 22 high of 2.1%. These levels would likely kickstart a Nikkei 225 pullback, spilling over to the US markets.
Despite the risk of further BoJ rate hikes, US stock futures have the potential to break new ground as the year-end approaches.
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