Dow Jones & Nasdaq 100 Dip as Japan Data Hits Risk Assets

Key Asian Market Movers: Nikkei Drops on Japanese Data

Japanese inflation and unemployment data leave Bank of Japan rate hike hopes alive. The numbers weighed on the Nikkei 225 and ASX 200.

Tokyo’s so-called core-core inflation rate slipped from 3.1% in July to 3.0% in August. Core inflation held well above the BoJ’s 2% inflation target. Meanwhile, Japan’s unemployment rate fell from 2.5% in June to 2.3% in July, supporting a more hawkish BoJ rate path.

Rising bets on a Q4 BoJ rate hike could strengthen the Yen, affecting carry trades and demand for risk assets.

The Nikkei 225 fell 0.30% to 42,700 in the Asian morning session, while the ASX200 dipped 0.24% to 8,959.

Why Yen Carry Trades Matter

In 2024, the BoJ reduced its purchases of Japanese Government Bonds (JGBs) and unexpectedly hiked interest rates. The July monetary policy decision coincided with speculation about multiple Fed rate cuts, narrowing the US-Japan interest rate differential in favor of the Japanese Yen.

The USD/JPY pair plunged from 161.807 on July 10 (2024) to 139.576 on September 16 (2024), triggering a Yen Carry Trade unwind.

Notably, the Nasdaq Composite Index tumbled 11.2% from July 31 (2024) to August 5 (2024) in response to the BoJ’s policy decision. USD/JPY’s slump led to margin calls, forcing investors to exit risk assets to unwind Yen carry trades, further strengthening the Yen. Fast forward 12 months. Investors now face the prospect of a Q4 BoJ rate hike and multiple Fed rate cuts.

This morning, the USD/JPY pair was down 0.04% to 146.867, following Thursday’s 0.31% loss. Month-to-date, the pair has fallen 2.56%.

US and Asian Stock Market Moves

Notably, US stock futures were in negative territory in the morning session, reflecting investor caution over inflation and central bank policy moves. The Nasdaq 100 E-mini and S&P 500 E-mini fell 34 points and 5 points, respectively, while the Dow Jones E-mini dropped 62 points.

Meanwhile, the Hang Seng Index and Mainland China’s CSI 300 and the Shanghai Composite Index bucked the broader market trend. The Hang Seng Index rose 0.39%, while the CSI 300 and Shanghai Composite Index gained 0.03% and 0.13%, respectively.

Sentiment toward Chinese firms advancing in the AI space, along with hopes for continued policy support from Beijing, has boosted Hong Kong and Mainland-listed stocks.

Surge in Chinese Markets

Xinhua News Agency’s China Wire reported record monthly turnover in Chinese markets, stating:

“China’s stock market is on track for record monthly turnover, with average daily volume reaching 2.2 trillion yuan ($309 billion) this month, surpassing the previous high of 2 trillion yuan set in October following government stimulus measures. The rally has propelled the onshore CSI 300 Index up nearly 10% this month, making it one of the world’s top performers, despite ongoing concerns over US tariffs and China’s property crisis.”

JPMorgan cited retail traders, foreign inflows, speculative activity, and AI optimism as key drivers.

Sustained gains could trigger a rotation from US to Hong Kong and Mainland-listed stocks. While US markets hover at record highs, the Hang Seng Index, CSI 300, and Shanghai Composite remain well below all-time highs.

Outlook: US Data in Focus

Looking ahead, investors should brace for market volatility. Later today, the US Personal Income and Outlays Report could influence the timeline for a Fed rate cut. Economists forecast the Core PCE Price Index to rise 2.9% year-on-year in July, up from 2.8% in June.

A sharper reading alongside robust personal income and spending could dampen expectations of multiple Fed rate cuts, weighing on risk assets. On the other hand, softer inflation and weaker income and spending may signal a more dovish Fed policy stance, lifting sentiment.

Technical Levels to Watch

Despite the morning losses, the broader short-term bias remains bullish, hinging on the upcoming Personal Income and Outlays Report and Jobs Report (September 5).

Dow Jones

• Resistance: August 22 high of 45,841, 46,000, then 46,500.
• Support: 45,500, 45,000, and then the 50-day EMA (44,469).

Nasdaq 100

• Resistance: August 18 high of 23,882, 24,000, then 24,500.
• Support: 23,500, the 50-day EMA (23,089), and then the August 20 low of 23,035.

S&P 500

• Resistance: August 28 high of 6,523 and 6,750.
• Support: 6,500, the August 20 low of 6,363, and then the 50-day EMA (6,327).

Will US inflation data, labor market data, and Fed speakers deliver US markets a perfect storm? The next week could prove pivotal. Follow our live coverage and consult our economic calendar.