The Nikkei 225 index rebound gathered momentum on Thursday as investors cheered the latest decision by the Bank of Japan (Bo). The index rose by 0.30% to ¥27,740, which was the highest point since June 16th of this year. It has risen by more than 12% from the lowest level in March as the Japanese yen has crashed to the lowest level in 24 years.
The main catalyst for the Nikkei index is the latest interest rate decision by the BoJ. As widely expected, the bank continued being an outlier among other central banks. As a result, the BoJ decided to leave interest rates unchanged at -0.10%. It also reiterated that it will continue offering stimulus in a bid to support the embattled economy.
As a result, the Japanese yen weakened across the board. The USD/JPY rose to a high of 138.15, which is a few points below the highest point this year. The pair has surged by more than 20% this year, making the Japanese yen the worst-performing major currency. Analysts believe that the BoJ will only respond to the falling currency once it rises to about 145.
A weaker yen has an impact on the Nikkei 225. First, many foreign investors like Warren Buffett are seeing the value of their holdings slip in two ways. First, the index has dropped in both yen and dollar terms. Second, many domestic companies have seen the cost of doing business rise since many of them depend on imports. Some of the most affected are companies like Shionogi, Fast Retailing, and Tosoh Corp.
Third, many Japanese exporters like Nissan, Honda, and Toyota are also being hit by the USD/JPY performance. These firms are spending more on imports than they did before since Japan does not have any major resources. But, at least for them, their businesses is being offset by their international operations such as those in the US.
The Nikkei 225 index has been in a strong bullish trend in the past few weeks. It rose to a high of ¥27,711, which was above the important resistance point at ¥27,264. In addition, the index has risen above the 25-day and 50-day moving averages, while the Relative Strength Index (RSI) has moved to the overbought level.
Therefore, the pair will likely keep rising as investors target the next key resistance level at ¥28,000. A drop below the support at ¥27,265 will invalidate the bullish view.
This post was last modified on Jul 21, 2022, 08:54 BST 08:54