Here’s why Nikkei 225 vicious rally has just hit a wall

The Nikkei 225 was the biggest laggard in Asia today. The index dropped by 0.35% and is now trading at ¥23,096, which is inches below the yesterday’s high of ¥23,175. The other laggard in Asia-Pacific was DJ New Zealand, which declined by more than 2%. On the other hand, the Hang Seng was the best-performing index after the government agreed to bailout Cathay Pacific.

Japan stocks fall because of a strong yen

Japan is mostly an export-oriented country. Every year, the country exports goods worth more than $738 billion, meaning that it is among the biggest exporters in the world. Indeed, most companies in the Nikkei 225 make money from their exports.

As a result, most of these companies support a weaker yen because it makes their goods less expensive to foreign buyers.

In the past two days, the Japanese yen has been on a sharp surge against the US dollar. The USDJPY pair has declined from a high of 109.85 to a low of 107.96. That is a 1.75% increase in the Japanese yen. As a result, the implication is that if the trend continues, most companies will start seeing less demand for their goods.

Nikkei 225 declines on a new wave of bankruptcies

The Nikkei index also declined because of the rising wave of new bankruptcies in Japan. The data from Shoko Research showed that there were about 61 bankruptcies in the country in May. More than 221 companies have filed for bankruptcy from February. This data covered companies that had liabilities of more than ¥10 million. According to the research firm, the hospitality industry was the most affected because the pandemic has reduced activities in the industry significantly.

Best and worst performers in the Nikkei index

Most companies in the Nikkei 225 were in the red today. The best-performers were Camsys Holdings, Kajima, NKSJ, Kubota, and Kansai Electric, which rose by more than 2%. On the other hand, the worst-performers were Nissan, Advantest, Sumitomo Chemical, and Marubeni Corporation.

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Nikkei 225 technical outlook

On the daily chart, the Nikkei 225 is trading above the important ¥23,000 resistance level. It is also above the 50-day and 100-day exponential moving averages while the RSI has climbed to its highest level this year. The index will continue with the upward trend as bulls target the YTD high of ¥24,100.

On the flip side, a move below the psychological level of ¥22,000 will invalidate the upward trend. It will mean that there are more sellers in the market, who are interested in pushing it lower.

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