Nikkei 225 Index Outlook as USD/JPY Flirts With 145

The Nikkei 225 index slipped by more than 2.45% on Wednesday as mood in the market shifted and the USD/JPY flirted with 145. After rising for five straight days, the Nikkei index plummeted to a low of ¥27,920, which was lower than this month’s high of ¥29,216. 

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Japanese yen sinks

Nikkei 225, which is made up of the biggest Japanese companies, sunk on Wednesday as global stocks retreated. This performance mirrored that of its American counterparts like the Dow Jones and Nasdaq 100 which crashed by over 4%. 

The performance worsened after the US published the latest inflation data. These numbers revealed that the country’s inflation rose by 0.1% in August. The headline inflation dropped slightly to 8.3% as gasoline prices dropped.

Therefore, global stocks declined as investors predicted that the Federal Reserve will continue with its rate hikes policies. The baseline is that the bank will hike by another 0.75% next week. Historically, stocks tend to react negatively to rate hikes. Most analysts had already priced in a slowdown in rate hikes since they expected that the Fed will slow its tightening process.

The Nikkei 225 index also rose as the USD/JPY price flirted with 145. It has jumped by more than 20% this year as the dollar strength continued. A weak Japanese yen has mixed impacts on Nikkei constituents. Some companies, especially exporters,  benefit substantially from the weak Japanese yen. More others that depend on imports suffer as the cost of imports surge.

The best performers in the Nikkei 225 index were Mitsubishi Heavy Industries, Takashimaya, ANA Holdings, Mazda Motor, and Mitsui. On the other hand, the worst performers were companies like Softbank Group, Recruit Holdings, Bridgestone, and Fast Retailing.

Nikkei 225 forecast

The Nikkei index has been in a bullish trend in the past few weeks. It managed to rise from a low of ¥24,640 in March to a high of ¥29,252. The index then pulled back slightly from the key resistance level at ¥28,375, which was the highest point on June 9. It has also moved to the 25-day and 50-day moving averages while the MACD has moved to the neutral point.

Therefore, the index will likely remain at around ¥28,000 this week. A move above the resistance at ¥28,375 will signal that there are more buyers, which will see it rise to ¥29,000. On the other hand, a drop below ¥27,000 will invalidate the bullish view.

Nikkei 225