The Nikkei 225 index rose by more than 1 per cent as analysts remained optimistic about the recovery process. The index is trading at ¥22,546, which is the highest it has been in three months. Other indices in Asia like Hang Seng and Shanghai Composite rose by 1.40% and 0.50% respectively.
Automakers lead in Japan
In Japan, automakers were among the best-performing stocks in the Nikkei 225 index. Shares in Mazda, Subaru, Nissan, Mitsubishi Motors, and Suzuki rose by more than 4%. That is mostly because analysts are hopeful that the Japanese government will allocate more money to bailout a sector that is so important for the Japanese economy. Other countries like the United States, Germany, and South Korea have all allocated funds to stimulate the sector.
Another reason why automakers are doing well is because demand, especially in China is coming back. According to Bloomberg, auto sales in China rose by more than 12% in a sign that the industry will recover faster than expected. More than 2 million vehicles were sold in May.
Another factor that could be pushing automakers in the Nikkei index higher is the weakening yen. The currency has declined to the lowest level in eight weeks, which favours exporters in Japan.
Japan stocks rally as a new normal begins
The Nikkei 225 also rose because a new normal is beginning in most countries. According to media reports, business activity has started to come back in most cities, including Berlin, London, and Shanghai. The recently released manufacturing PMI data showed that business activity improved significantly in most countries.
In Japan, the country lifted the state of emergency a week ago and more people are starting to go back to work.
Nikkei 225 best and worst performers
Most stocks in the Nikkei 225 index were in the green. The best performing was Mitsui Chemicals, whose shares rose by more than 7.30%. Other non-auto gainers were Nippon Sheet Glass, Minebea Mitsumi, NSK, and NTN Corp, which rose by more than 5%.
On the other hand, the biggest laggards in the Nikkei index were CyberAgent, NKSJ Holdings, Fujitsu, and NEC Corp, which fell by more than 2%.
Download our Q2 Market Global Market Outlook
Nikkei index technical outlook
The Nikkei 225 index is trading at ¥22,522, which is close to the highest level in three months. On the daily chart, the price is above the 100-day and 50-day exponential moving averages. It is also slightly above the 78.6% Fibonacci retracement level while the momentum indicator has remained elevated. The index will likely continue moving upwards as bulls attempt to test the next resistance at ¥23,000.
On the flip side, a move below ¥21,165 will invalidate this trend. This price is along the 61.8% Fibonacci retracement level.