The Nikkei 225 index rose by more than 2.6% as investors digested the latest action by the Bank of Japan. The market also reacted to the falling number of daily new coronavirus cases.
Nikkei 225 rises after BOJ decision
In a shortened monetary policy meeting, the Bank of Japan (BOJ) left interest rates unchanged at minus 0.1% as was widely expected. The rates have remained in the negative territory since 2016.
The bank also announced that it will continue supporting the economy during the current coronavirus pandemic. It will achieve this by expanding its balance sheet, which is another way of saying printing money. It said that it would buy these bonds without setting an upper limit.
It is worth noting that the BOJ had one of the biggest balance sheets in the world. It now has a balance sheet worth more than $5.3 trillion, which is a significantly higher number than Japan’s total GDP.
The bank said that it would ease collateral rules to enable small businesses to borrow more money. It has done this by allowing banks in the country to tap its vast amount of resources.
At the same time, the bank downgraded the Japan’s economy. Members now expect the economy to shrink by between 3% and 5% this year. It also sees inflation falling to 0.3% from the previous 0.7%.
Nikkei 225 rises as coronavirus cases fall
The index also rose as the number of new cases declined on Sunday. According to the health ministry, the country reported 210 new cases yesterday. This was a sharp decline from the 515 that were reported on Saturday. At the same time, the number of active cases has flattened at about 11,260 while daily deaths have been falling.
These numbers send a positive picture for the Japanese economy, which has been hit significantly higher by the disease.
Nikkei 225 best and worst performers
Most companies in the Nikkei 225 index rose today. In fact, only about 15 companies declined. The worst-performers were Tokyo Gas, Denso Corp, and Chugai Pharmaceuticals, which declined by more than 2%. They were followed by Daiichi Sankyo, CyberAgent, and Osaka Gas. On the other hand, the best-performers were Fanuc, Advantest Corp, Dainippon Screen, and Sumitomo Metal. These companies rose by more than 3%.
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Nikkei 225 technical outlook
On the four-hour chart, the Nikkei 225 index rose to an intraday high of ¥19,815. This price is above the 50-day EMA and the 23.6% Fibonacci retracement level. This Fibo was drawn by connecting the YTD highs and lows.
It is also slightly below the 100-day EMA. With the index comfortably above the 23.6% retracement level, I expect bulls to try and retest the 38.2% retracement level at about ¥20,182.
But, before it gets there, bulls will have to defend the previous support and the 100-day EMA level of ¥19,929.
On the flipside, the jump today could be a dead cat bounce, which means that the index could also pare back some of these gains.
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