Breaking News
Get 40% Off 0
🔎 See NVDA full ProTips for an instant risks or rewards Claim 40% OFF

Nikkei Targets All-Time Highs After 33 Years Despite Bank of Japan Shock

By Investing.com (Damian Nowiszewski)Market OverviewJul 31, 2023 20:16
ph.investing.com/analysis/nikkei-targets-alltime-highs-after-33-years-despite-bank-of-japan-shock-178149
Nikkei Targets All-Time Highs After 33 Years Despite Bank of Japan Shock
By Investing.com (Damian Nowiszewski)   |  Jul 31, 2023 20:16
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
JP225
+2.19%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
USD/JPY
+0.01%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
JP10Y...
-0.70%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
DXY
0.01%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
  • Bank of Japan raises upper range of 10-year government bond yields to 1%
  • Inflation remains high but not high enough for BOJ officials
  • Meanwhile, Nikkei225 could still target new all-time highs

Last week, the Bank of Japan shocked markets by deciding to raise the yield curve tolerance range of the Japan 10-Year Treasury bond yield to 1%. This marked a significant step towards reversing years of ultra-accommodative monetary policy. However, Bank Governor Ueda emphasized that this move is just a correction, and their main focus remains to achieve sustained inflation.

If their words hold true in the coming months, the overall situation is unlikely to change, and the Japanese yen will continue to face selling pressure. As for Japan's main stock market index, Nikkei 225, not much has changed. It's probably going through a correction phase but still has the potential to continue its upward trend.

Over the past few decades, Bank of Japan officials have been worried about the persistently low inflation, occasionally dipping into deflationary territory with a few isolated spikes above 2%. With the outbreak of war in Ukraine, the rising global price dynamics have also affected Japan, leading to the highest levels of inflation in over 40 years.

Currently, both headline CPI and core remain above the inflation target, and the BOJ board has legitimate concerns that this might only be a temporary situation based on recent years' patterns.

National Core CPI YoY
National Core CPI YoY

Considering forecasts, although the median for 2023 was raised to 2.5% from 1.8%, the projections for 2024 were revised downward to 1.9%. This shows that with the stabilization of prices in global markets, the specter of disinflation or even deflation is real, so the BoJ's ultra-dish policy should be maintained despite Friday's revision.

Nikkei: All-Time Highs in Sight?

The continuous printing of yen to buy securities is one of the main drivers of the Japanese stock market, where a wide stream of newly created currency is flowing into markets. Currently, the index is undergoing a local correction and forming a flag pattern, providing grounds for the upward trend to continue.

Nikkei 225 5-Hour Chart
Nikkei 225 5-Hour Chart

Nikkei 225 Monthly Chart
Nikkei 225 Monthly Chart

In the event of an upward breakout and successful penetration of the 33,000-point level, it would generate a bullish signal, potentially leading to a retest of this year's highs.

Unlike many European or U.S. indexes that have recently made new all-time highs, the Nikkei faces a significant resistance level at its previous peak of around 39,000 points, established in late 1989 and early 1990.

This level serves as a crucial medium-term target, and if the Bank of Japan continues its accommodative policy despite raising the long-term bond yield's upper range, there is a possibility of attaining it later this year.

USD/JPY Remains in an Uptrend

Regarding the USD/JPY currency pair, the uptrend remains intact. Despite a somewhat hawkish move by the BOJ and a dynamic corrective phase, the exchange rate between the U.S. dollar and the Japanese yen is still in an overall upward trajectory. The key factor supporting the uptrend was the successful defense of the support zone in the 137-138 yen per dollar price range.

Despite an ultimately hawkish move by the BOJ and a rather dynamic correction, the quotations of the main currency pair with the Japanese yen remain in an uptrend. The key, in this case, was the defense of the support area falling in the 137-138 price area.

USD/JPY Price Chart
USD/JPY Price Chart

The increasing demand suggests that the USD/JPY currency pair is likely to move higher, with the first target around 145 yen. If it manages to break above this level, it could continue rising towards a long-term peak just below 152.

***

Hurry up and enjoy the final day of our InvestingPro summer sale!

Summer Sale Is Live!
Summer Sale Is Live!

Disclaimer: This article is written for informational purposes only; it is not intended to encourage the purchase of assets in any way, nor does it constitute a solicitation, offer, recommendation, advice, counseling, or recommendation to invest. We remind you that all assets are evaluated from different perspectives and are extremely risky, so the investment decision and the associated risk are the investor's own.

Nikkei Targets All-Time Highs After 33 Years Despite Bank of Japan Shock
 

Related Articles

Gary Tanashian
Let’s Talk ‘Inflation’, Post-CPI By Gary Tanashian - Feb 15, 2024

A little discussion about this thing we call “inflation” after the January CPI reportA vast majority of people see inflation as rising prices, wages, and ‘pushed’ costs within the...

Nikkei Targets All-Time Highs After 33 Years Despite Bank of Japan Shock

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email