Nikkei 225 Drops As Industry Outlook Tanks To 7-Year Low

The Nikkei 225 index followed yesterday’s performance by Wall Street by dropping by more than 1.50%. The index, which tracks the 225 biggest companies in Japan, ended the quarter lower by almost 20% as the impacts of Coronavirus affected the economy.

Indeed, only nine companies in the index have risen this year. These are companies like Chugai Pharmaceutical, Nicherei, and CyberAgent, which have risen by 20%, 18%, and 8% respectively. The biggest losers are companies like Alps Electric, Kawasaki Kisen, and Nippon Sheet Glass, which have declined by more than 50%.

The biggest news of the day was from Tankan, which released the large manufacturers’ sentiment for the first quarter. The sentiment declined to the lowest level in 7 years in which was the fifth straight quarter of declines. The sentiment among manufacturers declined to -8 from the previous zero. The sentiment from nonmanufacturers too declined from 20 to 8. Besides, companies expect the next three months to be tough. In response to the report, analysts at ING said:

Notably, outlooks are fairly horrible, so this plays to where Japan is headed next as the Coronavirus interrupts daily life and business more substantially on the assumption that a lockdown is at some stage inevitable.

The Coronavirus pandemic came at a difficult time for Japan. The country had just enacted a consumer tax increase, and the rate of inflation was non-existent. Meanwhile, the BOJ had continued to prop the markets by leaving rates negative for so long. It was also buying back a significant amount of government bonds. All this means that Japan could have a dangerous L-shaped recovery where a recession happens and remains the same.

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Nikkei 225 Technical Analysis

On the four-hour chart, the Nikkei 225 index is trading slightly below the 38.2% Fibonacci Retracement level, which was drawn by connecting the highest and lowest points of the year. Meanwhile, an Elliot Wave analysis shows that the index is currently in the fifth wave. This means that the index has high chances of moving below the YTD low of ¥16,366.

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