Nikkei Upbeat on Cautious BoJ Hold

JPN225 Analysis

The last policy decision and the second hike of this tightening cycle by the Bank of Japan had sparked a plunge in stock markets and a Yen rally. Today's decision though brought muted reaction. Offering no surprises, policymakers kept rates at around 0.25% and appeared more cautious around further removal of monetary support. They had previously guided to further rate increases, but that reference was removed from the new policy statement. ^[1]

JPN225 has covered most of the lost ground and runs its second straight profitable week, helped partly by the renewed tech optimism thanks to Nvidia's CEO recent upbeat remarks.This fueled a rebound by Japanese chip firms and top Nikkei constituents, like Tokyo Electron (8035.jp) and Advantest (6857.jp). The BoJ's trepidation helps JPN225 in the effort to escape its correction and set new monthly highs (39,204), but we are cautious greater advance past the 40K mark.

Even though the BoJ removed its guidance, it remains on track for further tightening and another hike within the year is reasonable. Officials expect the virtuous wage-price cycle to intensify and upgraded their view on private consumption, which they now see on "a moderate increasing trend" (from resilient previously). Furthermore, today's inflation data showed that (CPI ex fresh food) accelerated for fourth consecutive month, staying above the 2% for more than two years.

Monetary policy remains a headwind and along with overbought conditions on the technical front, we can see a return below the EMA200 (black line). This would shift bias to the downside, although a return to bear territory does not look easy.