Nikkei 225 Forecast: Still Bearish on Japan State of Emergency Fears

The Nikkei 225 index held steady as Japan considers extending its state of emergency as the number of Covid-19 cases rose. The index is trading at ¥27,735, which is above this week’s low of ¥26,956. It is still about 9.75% below the highest point this year. At the same time, it has been left behind by America’s Nasdaq 100 and S&P 500 indices that are at record highs.

Japan state of emergency

Like most Asian countries, Japan is facing a major Covid outbreak. As a result, the government is considering expanding its state of emergency to eight more prefectures as it tries to curb the spread. Such a move will mean that about half of the country’s prefectures will be in a state of emergency. This happened after the government confirmed more than 21,000 new cases on Tuesday and about42 deaths. 

The state of emergency will likely affect many companies in the Nikkei 225 index. At the same time, the index has struggled because of the recent performance of key constituent companies. Recently, Softbank announced weak results as its investments in Chinese companies declined. At the same time, Toyota and other automakers have cut their production because of the overall part shortage. 

The Nikkei 225 index has been affected more than US indices because most of the constituent companies are manufacturers. In the US, weights in indices like the S&P 500 is usually in the technology sector.

The top performers in the Nikkei index today were JFE Holdings, Shionogi, Rakuten, and Mitsubishi Motors. Toyota, Suzuki, and Hitachi also did well. On the other hand, companies lke DIC Corp, Seven & I, Ebara, and Tokai Carbon were the main laggards.

Nikkei 225 forecast

The four-hour chart shows that the Nikkei 225 index has been under intense pressure. Along the way, the index has formed a descending channel that is shown in black. It is currently between this falling channel. At the same time, it has moved slightly above the 25-day and 15-day exponential moving averages while the MACD has moved above the neutral level.

Therefore, while a rebound is possible, the index will likely maintain the bearish trend as bears target moves below the ¥27,000 support level. On the flip side, a move above the key resistance at ¥28,000 will invalidate this view.

Nikkei 225