JPN225 Slides to Correction Territory ahead of the BoJ Decision
JPN225 Analysis
The Japanese index is having another blockbuster year, hitting an all-time high earlier this month. The rally is largely fueled by the BoJ still accommodative stance, despite the shift away from its ultra-loose setting and the Yen's demise which hit 38-year lows against the greenback.
As I have mentioned again though, the shift in BoJ policy could lead to Yen strengthening and to a decline in the Nikkei. The central bank exited its negative its negative rates regime in a watershed moment in March and despite cautious stance, expectations mount for more forceful moves. Policymakers have already signaled a reduction in bond purchases and a rate hike could be considered, although there is ambivalence around the timing of action.
These prospects along with FX intervention have also helped then rebound and persistence could make Japanese equities less appealing to foreign investors. These forces are now playing out, as JPN225 enters correction territory, losing more than 10% from its record peak. It threatens the critical 200Days EMA (blue lines) and a breach could open the door to deeper losses.
However, the BoJ may be unable to escape its cautious and slow path to normalization amidst uncertain inflation outlook and the currency remains vulnerable. Furthermore, foreign investors continue to plough into equities and the stock market rally is not based just on that. Structural reforms, favorable policies by the government and strong corporate earnings are among the supportive factors.
Furthermore the drop is stretched from a technical perspective, as the RSI pints to the most oversold in years. This can help JPN225 stage a comeback and try to reclaim the EMA200 (black line) at around the 40K mark. Successful effort would reinstate the bullish bias, but strong catalyst would be needed.
Nikos Tzabouras
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. With extensive experience in market analysis and a strong foundation in international relations, he brings a unique perspective to financial markets. Nikos emphasizes not only technical analysis but also on fundamentals and the growing influence of geopolitics on financial trends.
As a Senior Financial Editorial Writer, he delivers comprehensive and forward-looking insights across a wide range of asset classes, including equities, commodities, and currencies. His work explores how macroeconomic events, political developments, and global policies impact market dynamics, providing readers with a deeper understanding of both short-term movements and long-term trends.
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