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Nikkei 225: Japan stocks whipsaws as Abe tries to decouple from China

Nikkei 225
Nikkei 225

The Nikkei 225 index wavered today as Japan started to question its reliance on goods from China. According to the Nikkei Asian Times, Shinzo Abe’s government has decided to limit some of the items the country buys from China.

Japan government gives subsidies

The coronavirus pandemic has caused significant damage to the Japanese economy. It has also revealed the extent in which the Asian country relies on Chinese goods such as drugs and medical equipment. In April, the government allocated more than $2.3 billion in subsidies to local companies to help them move their manufacturing operations back to Japan.

Japan is not the only country thinking of luring companies out of China. In the United States, Donald Trump has said that some important industries such as pharmaceuticals and healthcare equipment manufacturers will need to leave China. The same sentiment has occurred in countries like Australia and New Zealand.

In an interview with Nikkei, Yoshihide Suga, the Chief Cabinet Secretary talked of the importance of producing some items nationally. He cited masks, which are mostly produced in China.

“We must avoid depending excessively on particular countries for products or materials and bring home production facilities for goods needed for daily life.”

Still, the new paradigm shift risks opening a new phase of the global world order because of the strength China has on many areas of manufacturing.

Japan stocks best and worst performers

Most stocks in the Nikkei 225 index were in the red today. Among the best-performers were companies that would benefit if Japan moved its manufacturing from China. This includes companies like Tosoh, Toyobo, Chiyoda, and Osaka Gas. On the other hand, the worst-performers in the Nikkei index were Isetan Mitsukoshi, The Chiba Bank, Kawasaki Kisen Kaisha, and Kawasaki Heavy Industries, which dropped by more than 5%.

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Nikkei 225 technical outlook

On the three-hour chart, the Nikkei 225 index has been on an upward trend since March. The pair is now trading at 20,400, which is slightly above the 50% Fibonacci retracement level and the 50-day and 100-day exponential moving average. The price is being guided by the ascending pink trendline as shown below. Therefore, the pair may continue rallying since bulls appear to be in control. Therefore, they will attempt to test the 61.8% retracement level at 21,1325.

On the other hand, a move below 19,429 will invalidate this trend. This price is at the intersection of the ascending trendline and the 38.2% retracement level.