Technical Analysis JAP225

Economic Outlook 

Japanese NIKKEI 225 is on the rise trading near an all-time high following positive GDP data and supportive comments from country leaders. The Japanese economy grew at a faster-than-expected rate of 1.6% in Q1, surpassing the projected 0.7% growth. This strong economic performance has boosted market optimism. 

The recent earnings season has been a positive catalyst for Japanese equities, supported by Warren Buffett’s endorsement and improvements in corporate governance. The projected operating profit growth in the fiscal year ending March 2024 is about 6% for Tokyo Price Index (Topix) companies. Additionally, Goldman Sachs sees a potential in the Japan market, attributing the gains to corporate reforms and easy monetary policy.

The Bank of Japan (BoJ) may consider revising its Yield Curve Control (YCC) policy in the upcoming June meeting, supported by the robust GDP outcome. However, the BoJ is likely to remain patient in taking any policy actions and may wait until next year to make rate hikes, as they review recent developments in inflation and other macroeconomic data. Current interest rate is maintained at -0.1% level and has remained unchanged since 2016. The argument for the YCC policy to remain unchanged is the government’s approval of an electricity bill rise, which likely will support inflation to stay above 2% for a longer period. 

JAP225 (Nikkei 225) index is trading at 30,100 points, which is near its all-time high of 30,500. The price is also approaching the upper line of an uptrend channel (marked with blue line) that started in early March. The next significant resistance level should be expected at 30,500, indicating a potential target for further price gains. On the other hand, the support levels are identified at 29,300 and 28,300, which can act as price floors in case of a downward movement.

The MACD indicator, a momentum oscillator, indicates a strong bullish momentum without any signs of divergence at the moment. This suggests that the upward trend may continue, supporting the bullish outlook for the Nikkei 225 index. Traders and investors will be closely monitoring the resistance and support levels for potential trading opportunities.

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