Key Points
- Nikkei 225 climbed 1.9% to 49,673.65, tracking Wall Street’s rebound.
- Fed cut odds jumped to 80.7%, from 50% a week ago.
- Weak US retail sales and consumer confidence data heightened dovish sentiment.
The Nikkei 225 rose nearly 2% in early Wednesday trade, mirroring Wall Street’s overnight gains as weaker-than-expected US economic data bolstered bets that the Federal Reserve will deliver a 25-basis-point rate cut at its December meeting.
The rally comes after recent turbulence, with the index recouping ground from earlier losses tied to valuation concerns and rising bond yields. The move was supported by gains in cyclical and tech sectors, echoing global momentum.
According to the CME FedWatch Tool, traders now assign an 80.7% probability of a December rate cut, compared with near-even odds last week.
Wall Street’s Momentum Lifts Asia
The S&P 500 and Nasdaq Composite notched their third consecutive daily gains on Tuesday, buoyed by softer retail sales and weakening consumer sentiment, which suggested slowing growth but increased the likelihood of policy easing.
US Treasury yields briefly dipped below 4%, before stabilising around 4.01%. The US dollar index (USDX) slipped 0.2% to 99.69, extending its recent pullback, while Sterling advanced for a fifth straight day ahead of the UK budget announcement.
The easing dollar helped fuel risk appetite across Asian markets, with MSCI’s Asia-Pacific ex-Japan index up 1.1%, led by gains in Australia, New Zealand, and South Korea.
BOJ and Politics in Focus
Investors also digested reports that the Bank of Japan is preparing markets for a potential rate hike as soon as next month, following a meeting between Prime Minister Sanae Takaichi and Governor Kazuo Ueda.
While yen volatility remains contained with USDJPY trading near 156.05, local bond yields have risen to their highest levels since 2008. Political developments are also in play, with Takaichi’s growing popularity fuelling speculation of snap elections, according to the Yomiuri newspaper.
Technical Analysis
The Nikkei 225 is attempting a mild rebound after several days of pressure, lifting back toward the short-term moving averages.
Price is still trading beneath the early-November peak near 52,669, but this latest bounce shows buyers stepping back in around the 48,000 region, which has now acted as a stabilising floor twice this month.
The broader structure remains upward, although the index is clearly in a corrective phase within that larger trend.
Momentum indicators reflect this shift. The MACD remains below the signal line and deep in negative territory, signalling that sentiment is still fragile even with today’s recovery.
For the rebound to gain traction, the index needs to break above the 50,000 level and reclaim the short-term trend lines. Failure to do so risks another drift lower toward 47,000 to 46,500.
For now, the bounce is constructive but not confirmed, with the market still searching for clearer direction.
Outlook
With Fed cut bets driving sentiment and US dollar weakness providing tailwinds, Asia’s risk assets appear poised for further upside in the near term.
However, upcoming OPEC+ deliberations and BOJ policy shifts may inject volatility, keeping traders alert ahead of December’s pivotal central bank decisions.
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