Nikkei 225 Index analysis as Japanese yen slips, retail sales rise

The Nikkei 225 Index held steady above ¥50,000 after Japan published strong retail sales data and as the yen continued softening. It also reacted to the latest Tokyo CPI numbers and the growing tensions between Japan and China. So, does the stock have any upside?

Nikkei 225 Index steady as Japan retail sales rise 

The Nikkei 225 Index, which tracks the biggest companies in Japan, is holding steady near its all-time high, even as Softbank, one of its biggest companies, remain under pressure after falling by 9% from its highest level this year.

The index remained above the key resistance level at ¥50,000 after the statistics agency published strong retail sales data. According to the statistics agency, retail sales rose from 0.0% in September to 1.6% in October. 

This growth translated to an annual increase of 1.7%, a trend that may continue as the country prepares to implement a major stimulus package under Sanae Takaichi, the new prime minister.

The report also showed that the country’s industrial production rose by 1.4% in October, higher than the median estimate of 0.7%. Similarly, the labor market continued to do well, with the unemployment rate remaining at 2.6%.

However, the report also showed that Tokyo’s core inflation continued rising in October, moving to an annual level of 2.8%. Its headline Consumer Price Index moved to 2.7% from the previous 2.8%.

These numbers mean that Japan’s inflation is slightly above the BoJ’s target of 2.0%, and is a sign that the bank will continue hiking interest rates this year. 

In a statement on Thursday, Asahi Noguchi, a BoJ official, said he supported gradual interest rate cuts. He argued that maintaining interest rate too low for so long would have a detrimental impact on the economy.

Other BoJ officials, including Kazuo Ueda, have hinted that the bank will start hiking interest rates as soon as in December. 

In theory, Japan stocks would underperform as the bank starts hiking interest rates as that would draw more money to the bond market. Indeed, data shows that foreigners dumped stocks worth £348 billion and bought bonds worth ¥576 billion.

A BoJ rate hike, coming at a time when the Federal Reserve is considering cutting, may help to boost the Japanese yen, which has plunged in the past few weeks.

Japan and China tensions

The Nikkei 225 Index also held steady as Donald Trump pushed Takaichi to avoid further escalation.

This crisis started when Takaichi warned Beijing against invading Taiwan, which pushed China to issue travel advisories, economic measures, and international lobbying.

In a phone call with Takaichi, Donald Trump urged her to avoid further escalation as he tries to mend his relationship with Beijing.

Therefore, the ongoing Nikkei 225 Index performance is a sign that investors believe that the ongoing conflict will not have a lasting impact on Japan and its companies.

Nikkei 225 Index technical analysis

The daily timeframe chart shows that the Nikkei 225 Index has been in a strong uptrend in the past few months. It has jumped from a low of ¥30,885, its lowest level in April.

The stock has remained above the 50-day and 100-day Exponential Moving Averages (EMA) and the ascending trendline, its lowest swings since August.

There are signs that the Nikkei 225 Index stock is slowly forming a double-top pattern at ¥52,627, its highest point this year. This means that it will rebound by 5% from the current level. A move above that level will point to more gains, potentially to the psychological level at ¥53,000.

The post Nikkei 225 Index analysis as Japanese yen slips, retail sales rise appeared first on Invezz