Dow Jones & Nasdaq 100 Advance on Inflation Optimism, Overshadowing BoJ Rate Hike Bets

Fed Rate Cut Bets vs. CPI Risk

Traders pushed US stock futures higher on Thursday, betting the Fed will deliver deeper rate cuts — but all eyes now turn to today’s CPI report, the potential spoiler for Wall Street’s rally.

Japan Data Fuels BoJ Speculation

Japan’s manufacturing sector signaled a pickup in prices and sentiment ahead of crucial national inflation data, fueling speculation about a Bank of Japan rate hike.

Japanese producer prices rose 2.7% YoY in August, after a 2.5% gain in July — right in line with forecasts. The upswing in producer prices could indicate improving demand, enabling producers to raise prices. Producers typically pass cost increases on to consumers, supporting a more hawkish BoJ rate path.

Meanwhile, Japan’s BSI Large Manufacturing Index unexpectedly jumped 3.8% for the third quarter (forecast: -3.3%) after falling 4.8% in the previous quarter. August’s US-Japan trade deal lifted sentiment as lower levies could boost demand for Japanese goods, potentially lifting selling prices.

However, the USD/JPY pair was flat at 147.458 in the morning session. The pair held steady despite rising expectations of a 50-basis-point Fed rate cut next week and a Q4 BoJ rate hike, driving demand for risk assets.

Why USD/JPY Matters for Risk Appetite

Rising Japanese interest rates and lower US interest rates would narrow the interest rate differential between the US and Japan. A narrower rate differential could boost demand for the yen, potentially triggering a Yen Carry Trade unwind.

In 2024, the BoJ reduced Japanese government bond (JGB) purchases and surprised markets with a rate hike, triggering margin calls. The Nasdaq Composite Index slid 11.2% between July 31 and August 5 on the carry trade unwind.

Japanese Prime Minister Ishiba’s resignation has fueled BoJ policy uncertainty, tempering yen demand. A dovish incoming PM could support a looser policy stance, potentially boosting carry trades and demand for risk assets.

James E. Thorne, Chief Market Strategist at Wellington-Altus, commented on the potential return of the yen carry trade, stating:

“With Prime Minister of Japan Shigeru Ishiba’s resignation, Sanae Takaichi is now the front-runner to lead Japan, signalling a major policy shift that will directly affect the Bank of Japan. Takaichi’s support for maintaining low interest rates is likely to keep the yen weak and incentivize global capital outflows through the yen carry trade.”

Fed rate cut bets lifted stock futures, but investors stayed cautious ahead of the CPI report, capping the morning gains.

Futures Edge Higher on Inflation Optimism

US stock futures advanced in early trading on Thursday, September 11, after the main indexes posted mixed performances overnight. The Nasdaq 100 E-mini gained 31 points, the S&P 500 E-mini rose 12 points, while the Dow Jones E-mini advanced 40 points.

Upbeat data from Japan and expectations of multiple Fed rate cuts through the remainder of 2025 boosted sentiment.

According to the CME FedWatch Tool, the chances of a September Fed rate cut remain at 100%. However, the probability of a 50-basis-point rate cut in September rose from 7% to 8%. A weaker-than-expected US Jobs Report, the downward revisions to 2024 nonfarm payrolls, and softer producer prices raised expectations of more aggressive Fed rate cuts.

Despite the market optimism, the US CPI Report will be the main event.

CPI Outlook: Make or Break for Risk Sentiment

Today’s US CPI Report will influence sentiment toward Fed monetary policy and risk appetite. Economists forecast the annual inflation rate to rise from 2.7% in July to 2.9% in August.

A hotter-than-expected inflation reading could dampen bets on aggressive Fed rate cuts, weighing on risk assets. Furthermore, an upswing in inflation may fuel concerns about stagflation, a headwind for US equities. Rising stagflation concerns could outweigh the supportive effect of Fed rate cuts on risk assets.

On the other hand, cooling inflation would ease stagflation risks and boost expectations of a 50-basis-point September rate cut, lifting sentiment.

E-mini Futures: Key Technical Levels to Watch

The morning gains affirmed the short-term bullish bias. However, bullish momentum hinges on the US CPI Report and the Fed’s upcoming monetary policy decision. For traders, here are the key levels that could determine market direction in the coming sessions.

Dow Jones

• Resistance: September 10 high of 45,844, 46,000, then 46,500.
• Support: 45,500, 45,000, then the 50-day EMA (44,761).

Nasdaq 100

• Resistance: September 10 high of 24,044 and 24,500.
• Support: 23,500, the 50-day EMA (23,251), and 23,000.

S&P 500

• Resistance: September 10 high of 6,565 and 6,750.
• Support: 6,500 and the 50-day EMA (6,374).

With US inflation and the Fed decision in focus, traders should brace for data that could define September. Follow our live coverage and consult our economic calendar.