Nikkei 225: Is this the end of Japan stocks vicious rally?

The Nikkei 225 index declined sharply today as investors reacted to the selloff in Wall Street yesterday. The index declined by more than 1%, with most companies in the index being in the red. While all sectors were affected, the worst performers were marine transportation, mining, and nonferrous metals.

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Japan stocks fall as global outlook changes

The Nikkei 225 index decline was mostly because of the change of outlook of the global economy. In a statement on Wednesday, the Federal Reserve warned that the US economy would go through a prolonged period of weak growth due to the virus. For this reason, the bank decided to leave interest rates unchanged and continue with the aggressive quantitative easing program.

Meanwhile, investors in Japan stocks are concerned about a new wave of coronavirus outbreak especially in the United States. The main issue is that the recent protests have exposed thousands of people to the virus. While many people wore masks at the protests, the concern is that these masks did not protect them enough. Experts believe that the virus can be transmitted through the eyes.

Nikkei index because of strong yen

The Japanese yen, which is often seen as a safe haven currency, has been on an upward trend this week. The currency has gained because of the rising risks including those in the Korean peninsula. With most companies in the Nikkei 225 focusing on exports, they usually get hurt when the yen gains. This is because a strong yen usually makes it more expensive for foreign customers to buy their products.

Meanwhile, the upper house budget committee voted in approval of a new $298 billion supplementary budget. The funds will go to businesses to help them finance their rent at a time when most of them are suffering from low sales. Most companies, especially real estate firms in the Nikkei will gain from these funds.

Nikkei 225 best and worst performers

The Nikkei 225 index is trading at ¥22,291, which is a significant decline from this week’s high. The biggest losers in the index are Tokyo Dome, Mitsui Engineering, DIC Corp, Dainippon Screen, and Yaskawa Electric. All these shares dropped by more than 4%. On the other hand, the best-performers are Yahoo Japan, Chugai Pharmaceuticals, Toyobo, and Rakuten among others.

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Nikkei technical outlook

On the daily chart, the Nikkei 225 formed a bearish pattern shown below this week. It achieved this above the 78.6% Fibonacci retracement level. The price has now moved below this retracement but is still above the 100-day and 50-day EMAs. While the index has made some gains from the day’s low, there is a possibility that bears will attempt to test the 61.8% retracement at ¥21,152.

On the flip side, a close above 78.6% Fib level will send a signal that there are more buyers in the market.

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