Dow Jones & Nasdaq 100: BoJ Hike Steadies US Futures in Asia

The Bank of Japan raised interest rates to the highest level in 30 years in early trading on Friday, December 19. USD/JPY briefly climbed to 156 on the widely anticipated rate hike, easing market concerns over a yen carry trade unwind.

Softer Japanese inflation data, ahead of the BoJ’s monetary policy decision, weighed on the yen, also lifting risk sentiment.

However, 10-year Japanese Government Bond (JGB) yields were higher in morning trading, signaling a hawkish 2026 BoJ rate path. Rising yields left the threat of a yen carry trade alive, influencing US stock futures.

Despite the mixed morning, the outlook for US stock futures remains bullish. Softer US inflation and a more dovish Fed rate path are a boon for risk assets.

Below, I’ll outline the key market drivers, the medium-term outlook, and the key technical levels traders should watch.

Bank of Japan Raises Interest Rates

The Bank of Japan raised interest rates by 25 basis points to 0.75% on Friday, December 19, the highest since 1995. Crucially, the BoJ signaled the end of free money, hinting at further rate hikes should the economy and prices move in line with the Bank’s projections.

While USD/JPY climbed from 155.586 to a morning high of 156.175 before easing back, 10-year JGB yields hit 2%, their highest level since 2006.

Rising 10-year JGB yields suggest further rate hikes. However, the absence of yen strength would likely limit the effects of JGB yields on US stock futures. Notably, the Nikkei 225 rallied 1.27% in the morning session, underscoring easing jitters over a yen carry trade unwind.

Michigan Inflation Expectations in Focus

US futures were mixed during the Asian morning session on Friday, December 19. The Nasdaq 100 E-mini and the S&P 500 E-mini advanced 52 points and 5 points, respectively, while the Dow Jones E-mini fell 78 points.

Later on Friday, finalized consumer sentiment and inflation expectation figures will influence risk sentiment. According to the preliminary report, the Michigan Consumer Sentiment Index rose from 51.0 in November to 53.4 in December, while 1-year inflation expectations fell from 4.5% to 4.1%.

A softer 1-year inflation expectations reading would signal a pullback in consumer spending. Typically, consumers curb spending on the expectation of lower prices for goods in the future. Weaker spending would ease demand-driven inflation, supporting a more dovish Fed rate path and a bullish price outlook for US equity futures.

According to the CME FedWatch Tool, the probability of a March Fed rate cut increased from 53.9% on December 17 to 58.5% on December 18. Softer headline US inflation numbers for November lifted bets on a March rate cut, underscoring market sensitivity to US price data.

Key Technical Levels for Dow Jones, Nasdaq 100, and S&P 500

Despite the mixed Friday morning session, the Dow Jones E-mini, the Nasdaq 100 E-mini, and the S&P 500 E-mini remained above their 50-day and 200-day EMAs. The EMAs signaled a bullish bias.

Near-term trends will hinge on US data, JGB yields, USD/JPY price trends, and BoJ Governor Kazuo Ueda’s upcoming press conference. Key levels to monitor include:

Dow Jones

• Resistance: 48,500, the December 12 record high of 48,917, and then 49,000.
• Support: 48,000, 47,500, and then the 50-day EMA (47,375).

Nasdaq 100

• Resistance: 25,500, 26,000, and then the October 30 record high of 26,399.
• Support: the 50-day EMA (25,175), 24,500, and then 24,000.

S&P 500

• Resistance: the October 30 record high of 6,954, and then 7,000.
• Support: the 50-day EMA (6,777), 6,500, and then 6,250.

Short-Term and Medium-Term Outlook Hinge on US Data and the BoJ

In my opinion, the short-term outlook has turned bullish given the softer US inflation data and weaker USD/JPY. Rising bets on a March Fed rate cut support a bullish medium-term outlook.

Nevertheless, several scenarios may invalidate the cautiously bullish medium-term outlook, including:

• Bank of Japan Governor Ueda announces a 2% neutral rate, signaling multiple rate hikes in 2026 and a significantly narrower US-Japan rate differential.
• Hotter-than-expected US inflation expectations temper bets on a Fed rate cut.

Conclusion: Outlook Cautiously Bullish

In summary, softer US inflation and a non-committal BoJ Governor on future rate hikes would support a bullish short- to medium-term outlook for US stock futures.

However, over the next 12 hours, traders should monitor JGB yields, the USD/JPY, and the Nikkei 225. Their trends are potential warning signals for a yen carry trade unwind.

Key levels include a USD/JPY drop below 150 and 10-year JGBs sustainably at 2%, an important level to watch. These levels would likely trigger a sharper Nikkei 225 sell-off, weighing on broader risk sentiment.

Follow our live coverage and consult the economic calendar for real-time market updates.