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Nikkei 225 Index: Plot Thickens for Japan Stocks

The Nikkei 225 index has suffered a harsh reversal in the past few weeks amid concerns about the Japanese economy. It slumped to a low of ¥26,273, which was the lowest level since October 13. The index, which tracks the biggest Japanese companies, crashed by more than 10% in 2022 as most of its constituent companies crashed.

Latest Nikkei index news

The Nikkei 225 index plunged on Wednesday after the Bank of Japan published minutes of its December meeting. In it, the bank decided to leave interest rates unchanged at minus 0.1%. Its main policy change was the bank’s decision to adjust its yield curve measure in a sign that it was ready to tighten. The bank has been a hold out as top central banks hike rates and end quantitative easing.

BoJ minutes showed that officials saw the need for maintaining an accommodative policy even as some members warned that inflation was getting sticky. The bank concluded that rising wages will likely eradicate the risk of a return to deflation in the coming month. As such, analysts believe that the BoJ will likely move from its dovish tone when Governor Haruhiko Kuroda steps down in April.

The other important Nikkei 225 news was the strength of the retail sector. Data showed that Japan’s retail sales rose for nine straight months, helped by the country’s reopening. This reopening helped draw thousands of tourists, mainly from China. Alibaba’s Jack Ma is one of the thousands of Chinese who have moved to Japan. A rebound in retail spending is a positive sign for private consumption, which makes about a third of Japan’s economy.

Japan industrial output wanes

On the other hand, data showed that a cooling of the global economy was having an impact on industrial output. Industrial production shrank for the third straight month in November. As a result, production dropped by 0.1% and analysts expect that the trend will continue in the coming months.

The falling industrial output explains why many auto stocks have plunged in the past few months. Mitsubishi Motors, Hino Motors, Nissan, Olympus, Isuzu, and Suzuki shares plunged by more than 10% in the past 30 days. Other industrial giants like Denso, Nikon, and Subaru stocks plunged by over 10% as well. 

On the other hand, financials have done well because of the hawkish BoJ. Chiba Bank, Mitsubishi UFJ Bank, Concord Financial, and Sumitomo Mitsui Financial shares climbed by over 17% in the same period.

Nikkei 225 forecast

In my last article, I warned that the Nikki index was at risk of a major plunge as it formed a rising wedge pattern. This view was correct as the index has plunged since then. It has now formed a head and shoulders pattern, which is also a dangerous one. Also, the 50-day and 100-day moving averages have made a bearish crossover pattern.

Therefore, the index will likely continue falling as sellers target the next key support level at 25,540. A move above the resistance point at 27,200 will invalidate the bearish view.

Nikkei 225