BoJ Hike Steadies Markets: US Futures Resilient as Yen Carry Trade Jitters Ease

The Bank of Japan has delivered a historic 25bp rate hike, taking its policy rate to a 30-year high. While Japanese bond yields have surged to levels not seen since 2006, a lack of aggressive Yen strength has cushioned US futures. We break down why the technical bias remains bullish for the Dow, Nasdaq, and S&P 500.

Friday’s Asian session was dominated by the Bank of Japan (BoJ), which raised interest rates to 0.75%—the highest level since 1995. Despite this hawkish milestone, US equity futures remained largely resilient. The narrative is shifting from a feared "yen carry trade unwind" to a controlled policy normalization, supported by softer US inflation expectations and a steady technical floor.

BoJ’s Landmark Move: A Controlled Exit

The BoJ’s decision to hike rates was unanimous, signaling a firm commitment to exit decades of ultra-loose policy. However, the market’s "instant view" suggests this move was widely anticipated and well-absorbed.

• JGB Yields Surge: 10-year Japanese Government Bond (JGB) yields hit 2%, their highest since 2006. While rising yields typically threaten global liquidity, the impact was mitigated by a weaker-than-expected Yen response.
• USD/JPY Reaction: Instead of a sharp plunge (which would signal a carry trade collapse), USD/JPY briefly climbed toward 156. This currency stability provided a vital cushion for Asian indices and US futures early in the session.
• Carry Trade Status: While the threat of an unwind remains a medium-term risk, the lack of immediate Yen strength has allowed risk sentiment to stabilize.

US Sentiment in Focus: The Inflation Pivot

As the BoJ story settles, the focus shifts back to the US and the University of Michigan’s Final Consumer Sentiment report.

• Inflation Expectations: Preliminary data showed 1-year inflation expectations falling to 4.1% (the lowest since January). A confirmed "soft" reading in today’s final report would bolster the case for a more dovish Federal Reserve.
• Fed Rate Path: The probability of a March Fed rate cut has trended higher, currently sitting near 58.5%. Markets are increasingly betting that cooling demand-driven inflation will allow the Fed to resume its easing cycle in early 2026.

Technical Blueprint: Bullish Bias Intact

Despite the mixed morning session, the major US indices maintain a constructive technical structure.

Nasdaq 100

Tech stocks continue to lead the recovery, buoyed by strong earnings from semiconductor giants like Micron.

• Resistance: 25,500 and 26,000, with the record high of 26,399 in sight.
• Support: The 50-day EMA (25,175) is the primary floor that must hold to maintain the bullish trend.

S&P 500

The index is attempting to snap its recent losing streak, benefiting from a rotation back into tech and domestic growth.

• Resistance: The record high of 6,954, followed by the psychological 7,000 level.
• Support: The 50-day EMA (6,777) remains the critical medium-term pivot.

Dow Jones

The Dow faced slight pressure in Asia but remains within its long-term bullish channel.

• Resistance: 48,500 and the record high of 48,917.
• Support: 48,000, with deeper support at the 50-day EMA (47,375).

Market Outlook: A Cautiously Bullish December

The combination of a non-disruptive BoJ hike and cooling US inflation pressure points toward a "cautiously bullish" finish to the year. However, traders should remain vigilant. A sudden drop in USD/JPY below 150 or a sustained spike in JGB yields above 2% would serve as a "red flag" for a more aggressive carry trade unwind.

Consult our economic calendar for real-time updates on the Michigan sentiment data.

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