NEW YORK — U.S. producer price index data released Thursday showed wholesale inflation easing to a 4.7 percent annual pace in July, down from 5.5 percent in June and below economist forecasts. The monthly reading was flat—zero change—reinforcing a disinflationary trend that money markets had not fully priced. Fed funds futures now assign less than 40 percent probability to a September rate hike, down from levels that had traders anxious as recently as last month.
The S&P 500 rose 0.7 percent Thursday to a record close. The Nasdaq 100 climbed more than 1 percent, reaching its highest level since late June, driven by renewed enthusiasm for hyperscaler spending on artificial intelligence infrastructure.
Asian markets opened Friday absorbing that Wall Street advance. Japan's Nikkei 225 rose 1.5 percent to 69,352.56 as of 9:23 a.m. Tokyo time. The broader Topix added 0.9 percent to 4,213.02, with Advantest Corp. contributing the largest individual gain to that index. Of the 1,637 stocks in the Topix, 601 rose and 951 fell—the advance was narrow, concentrated in semiconductor and AI-linked names rather than broad-based.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, said AI and semiconductor-related shares are leading the move and are likely to continue supporting the Nikkei. His read: easing U.S. inflation concerns remove a ceiling on tech valuations and let the chip-heavy index run. Advantest, which manufactures testing equipment for advanced semiconductors, sits at the center of that trade.
South Korea's Kospi outperformed the region, rising as much as 3 percent before settling 1.86 percent higher intraday. The MSCI Asia Pacific Index climbed 0.4 percent. Hang Seng futures slipped 0.6 percent, the lone major index in the region trading lower, reflecting separate pressures in Hong Kong-listed equities.
The Japanese yen held near 159.45 to 159.50 per dollar—a level that keeps export-sector earnings calculations relatively stable for Japanese corporates. The offshore yuan was little changed at 6.7436 per dollar. Currency stability in both pairs removed a variable that could have complicated the equity rally.
The Bank of Japan remains its own counterweight. Prime Minister Sanae Takaichi's administration has backed a BOJ rate hike, with markets now pricing a move in either Sept. or Oct. That creates a split dynamic in Japanese markets: U.S. rate-hike fears recede while domestic tightening risk rises. Japanese financial stocks typically benefit from BOJ rate increases because higher rates widen net interest margins for lenders—the same logic that drives U.S. bank outperformance in a rising-rate environment. That sector divergence from the semiconductor rally sets up a debate within the Nikkei about which driver dominates the second half of 2026.
The PPI release follows a consumer price index print that showed U.S. headline inflation cooling to 3.4 percent. Together the two data points reduce the inputs that feed the Fed's preferred inflation gauge, the Personal Consumption Expenditures index. When both upstream costs and consumer prices soften simultaneously, the pipeline argument for persistent inflation weakens. That is the rate-market logic driving the September hike probability below 40 percent.
Oil gave the inflation picture additional cover. Brent crude hovered near $87.20 a barrel on Friday after Thursday's sharp decline broke a six-day winning streak. West Texas Intermediate edged up 0.1 percent to $81.35 but remained well off recent highs. Lower energy prices compress both headline PPI and CPI in subsequent months, extending the disinflationary window the Fed needs to justify holding rates steady.
Washington separately announced a 100 percent tariff on imported drones and their components, a move aimed at reducing U.S. dependence on foreign suppliers. The drone tariff adds targeted inflationary pressure in that specific category but is narrow enough that rate strategists do not treat it as a broad price-level shock.
The Topix set an all-time high on Thursday, confirmed by Kyodo, before Friday's continuation move. The Nikkei 225 had already closed Thursday at 68,308.59, up 784.53 points, or 1.16 percent, its third consecutive positive session. Friday's open to 69,352.56 puts the index within range of levels not seen since the AI-and-semiconductor surge that characterized the first half of 2026.
A Fed that pauses in September leaves the long end of the U.S. Treasury curve anchored rather than pushed higher. That supports risk assets globally because the discount rate applied to future earnings stays capped. Japanese equities with high earnings multiples in the semiconductor sector are among the most duration-sensitive in Asia—when U.S. long rates stop rising, those valuations get room to expand. The sub-40 percent September hike probability, if it holds through the next CPI and PCE prints, is the single most important variable for whether this rally extends into year-end.
