Easing fears of a yen carry trade unwind, despite a potential December Bank of Japan rate hike, and a likely Fed rate cut on Wednesday, December 10, support a bullish short- to medium-term outlook for US equity futures.
Below, I’ll outline the key market drivers, the medium-term outlook, and the key technical levels traders should watch.
BoJ Rate Hike Bets Intact as BoJ Governor Ueda Takes the Stage
Japanese wage growth accelerated in October, reinforcing Bank of Japan Governor Kazuo Ueda’s hawkish monetary policy stance. Notably, stronger wage growth will likely have a greater influence on policymakers than Q3 GDP data, which showed a 0.5% quarterly contraction. 10-year JGB yields climbed to their highest level since April 2007 before dropping back this morning.
While wage growth trends support a December BoJ rate hike, the Q3 contraction may temper bets on further monetary policy tightening through Q1 2026. A Fed rate cut and a BoJ rate hike would leave rates at 3.5% and 0.75%, respectively, wide enough to fuel yen-funded carry trades into US assets.
Later on Tuesday, December 9, Bank of Japan Governor Kazuo Ueda will speak for the third time this month, underscoring the central bank’s efforts to avoid a repeat of the market events in mid-2024.
Governor Ueda recently supported raising interest rates, citing diminishing US tariff risk and strong wage growth. The BoJ Governor also fueled uncertainty about the number of rate hikes needed to reach normalization, stating there was no consensus on the neutral interest rate.