Facts
- Futures on Japan’s Nikkei index (JP225) are down 1.25% as of 9:20 PM GMT.
- The Bank of Japan (BoJ) kept its policy rate unchanged at 0.50%, in line with expectations, with a 7–2 vote. However, board members Hajime Takata and Naoki Tamura voted in favor of a hike to 0.75%.
- Japanese government bond yields rose following the decision, while the yen strengthened.
- The BoJ announced it will begin gradually reducing its holdings of ETFs (and so-called J-REITs), with reports pointing to an annual pace of around ¥620 billion for ETFs.
- Market expectations for the next BoJ meeting (October 29–30) are currently pricing in a 55% probability of a rate hike.
Recommendation
- Short position on JP225 at market price
- Take profit: 44,260
- Stop loss: 45,400
Opinion
The prospect of a more hawkish Bank of Japan could significantly impact the yen’s exchange rate against the U.S. dollar—a crucial factor for Japanese exporters of technology, automobiles, and machinery. Since exporters form the backbone of Japan’s economy, they may suffer from a stronger yen.
In addition, the BoJ’s increasingly hawkish signals—its closer monitoring of inflation data and the announcement of planned (albeit gradual) sales of riskier assets such as ETFs—may keep the Nikkei under prolonged downward pressure. At the same time, the strengthening U.S. dollar could weigh further on global equity markets.
We recommend opening a short position on the JP225, with a target level of 44,260 and a protective stop loss at 45,400, as determined by price action methodology.
JP225 Chart (Hourly Interval)
Source: xStation5
