Surging JGB yields and a sharp drop in USD/JPY could make yen carry trades unprofitable, leading to the sell-off of risk assets to repay yen-denominated debt.
Crucially, hopes for Fed rate cuts in 2026 have bolstered demand for risk assets. US President Trump is expected to announce a new Fed Chair in January, who may be willing to stomach above-target inflation and favor lower interest rates.
Lower interest rates would reduce borrowing costs, boost corporate earnings, and raise equity valuations. Typically, Fed rate cuts would counter the effects of yen carry trade unwinds, watering down the longer-term impact of BoJ rate hikes.
Fed Speakers in Focus
US futures posted solid gains during the Asian morning session on Friday, January 2. The Nasdaq 100 E-mini and the S&P 500 E-mini climbed 148 points and 27 points, respectively, while the Dow Jones E-mini advanced 101 points.
Later on Friday, traders should closely monitor the speeches of FOMC members, given the influence of the Fed’s rate path on sentiment. Growing support for further monetary policy easing would counter yen carry trade unwind jitters, supporting bullish short- and medium-term outlooks for US stock futures.
According to the CME FedWatch Tool, the probability of a March Fed rate cut slipped from 48.7% on December 31 to 46.7% on January 2. Meanwhile, the chances of a cut in April or June stood at 57.8% and 81.9%, respectively.
Key Technical Levels for Dow Jones, Nasdaq 100, and S&P 500
Friday’s gains sent the Dow Jones E-mini, the Nasdaq 100 E-mini, and the S&P 500 E-mini further above their 50-day and 200-day EMAs. The EMAs signaled a bullish short- to medium-term outlook, aligning with positive fundamentals.
Near-term trends will hinge on US data, Fed chatter, and BoJ commentary. Key levels to monitor include:
Dow Jones
- Resistance: The December 26 record high of 49,086, and then 49,500.
- Support: 48,000 followed by the 50-day EMA (47,742).