Is this the end of the strong Nikkei 225 index surge?

March 10, 2024 09:40 PM PDT | By Invezz

Is this the end of the strong Nikkei 225 index surge? — Image source: Invezz

Japanese yen rises

The Nikkei 225 index retreated as the Japanese yen continued rebounding. The closely-watched USD/JPY exchange rate tumbled to 146.65, its lowest level since February 2nd of this year. As I predicted last week, the pair has more downside and could drop to 140 this year.

Japan stocks tumbled after the latest GDP report. According to the Statistics Agency, Japan’s economy expanded by 0.1% in Q4 after contracting by 0.7% in the previous quarter. It expanded by 0.4% on a YoY basis, avoiding a technical recession.

Japan’s economy was driven by an increase in capital expenditure, which rose by 2.0% during the quarter. External demand also jumped by 0.2% in the quarter. These two were offset by a 0.3% drop of consumer spending.

Therefore, most analysts expect that the Bank of Japan will start hiking interest rates later this year. The first hike could come as soon as March 19th since the country’s inflation and wages are rising albeit at a slower pace.

A strong Japanese yen tends to hurt the Nikkei 225 index because most companies rely heavily on exports. These include automakers like Toyota, Honda, and Mazda. The same is true among other exporters like Kawasaki Heavy industries and Komatsu.

Most Nikkei 225 index components were in the red on Monday. Mitsui Mining & Smelting stock plunged by over 6.63%, making it the worst performer in the index. The other top laggards were Softbank, Toyota Tsusho, Dainippon Screen, Pacific Metals, and Kawasaki Heavy Industries. All these stocks fell by over 5%.

Only a handful of companies rose on Monday. Dai Nippon Printing shares jumped by almost 5% while Teijin, Sumitomo Dainippon, Sumitomo Osaka, and Olympus jumped by over 2.50%.

Nikkei 225 index forecast

Nikkei chart by TradingView

The Nikkei 225 index has been one of the best-performing indices in the market. It has surged from last year’s low of ¥25,700 to over ¥40,000. The index has now pulled back slightly as hopes of a Bank of Japan rate hike rose.

This retreat was expected since assets tend to pull back after hitting an important level. In this case, the index hit the resistance point at ¥40,000.

Therefore, the Nikkei 225 index will likely bounce back in the coming days or weeks. If this happens, it will retest the important resistance at ¥40,000.

The post Is this the end of the strong Nikkei 225 index surge? appeared first on Invezz

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