Nikkei 225 Slips, USD/JPY Spikes Amid Fed and BoJ Divergence

The Nikkei 225 index collapsed to the lowest level since July 19 of this year as the USD/JPY spiked to 145. Its performance happened as the Federal Reserve and the Bank of Japan took extremely opposite measures. It crashed to a low of ¥26,984, which was about 7.28% below its highest point this year. 

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Fed and BoE divergence

Central banks have an important role in the financial market. In most cases, as it happened during the Covid-19 pandemic, stocks tend to soar when central banks embrace a dovish tone. Federal Reserve is the most important central banks in the world since it sets the stage for what other banks will do.

On Wednesday, the Fed continued hiking interest rates in a bid to fight the soaring inflation. It delivered the third straight 0.75% rate hike and warned that the fourth one could happen soon. At the same time, the bank warned that rates will continue rising in 2023. As a result, global indices like the Dow Jones and Shanghai Index retreated after the decision.

The Nikkei 225 index also crashed even after the Bank of Japan continued with its easing monetary policy. Unlike other central banks, it decided to leave interest rates unchanged at -0.10%. It hinted that more easing was on the way.

As a result, the Japanese yen continued retreating. The USD/JPY exchange rate rose to a multi-decade high of 145.30, which was the highest point in decades. The pair has risen by 26% this year alone, making the Japanese yen the second-worst performer in the G20 after the Turkish lira. 

Therefore, the crashing yen means that many domestic Nikkei 225 constituents are now paying more for imports. Retailers are also struggling since they are not able to adjust their prices easily.

Nikkei 225 forecast

The daily chart shows that the Nikkei 225 index continued its bearish trend on Thursday after the BoJ interest rate decision. As it dropped, it moved below the important support level at ¥27,269, which was the lowest level on September 7. It moved below the 25-day and 50-day moving averages while the Awesome Oscillator continued falling.

Therefore, the index will likely continue falling as sellers target the next key support level at ¥26,500. A move above the resistance at ¥27,300 will invalidate the bearish view.

Nikkei 225