Nikkei 225 Index (N225)

Has The Rally In Japan’s Nikkei 225 Run Out Of Steam?

Posted in Nikkei 225 Index (N225) on March 30th, 2014 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

In the year that followed the stimulus program initiated by Prime Minister Shinzo Abe of Japan in December 2012, the Nikkei 225 equity index rallied nearly 57% by the end of 2013. That stimulus program, which triggered the torrid rally of 2013, incorporated the economic policies of Prime Minister Abe, known as Abenomics. It consisted of three key initiatives, which included fiscal stimulus, monetary easing and structural economic reforms.

Nevertheless, by the end of 2013 the Nikkei 225 index could not rise above long-term trend line resistance at 16,320. Moreover, the Nikkei 225 also broke below steep upward sloping trend line support at 15,380, which suggests that a correction has likely begun.

A mild shift away from risk assets coupled with a moderate run into safer assets has given the Japanese Yen a modest lift in recent weeks with Dollar/Yen strengthening from 105 at the beginning of 2014 to 102.50 on Friday. This strength, however, pales in comparison to the decline in Dollar/Yen that saw it retreat from 83 in December 2012 to 105 by the end of 2013. Nevertheless, recent Yen strength could become more pronounced if global political tensions continue to increase. Such a scenario would, in turn, make Japanese exports less competitive and could erode equity values in the process.

Another economic issue that is lurking around the corner is the Japanese national sales tax, which is set to rise to 8% in April from 5% currently. While some observers expect to see the negative side effects of the sales tax hike to dissipate within 9-to-12 months afterwards, a near-term slump in consumer spending is nevertheless likely.

For now, a sell-into-strength trading strategy regarding the Nikkei 225 is likely to prevail over the short-to-intermediate term.


Japan’s Nikkei 225 Index Ready To Breakout

Posted in Nikkei 225 Index (N225) on January 16th, 2013 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

As the new government in Japan overtly seeks to devalue the Yen, the widely followed Nikkei 225 Index of key Japanese equities is on the “verge” of staging an important “breakout” to the upside. In the absence of overbought conditions on long-term (monthly) charts, a break above the 10,830.40 level on the Nikkei could ignite a solid extension higher that could be viewed as a byproduct of the beginning of a major currency “war”.

After suffering decades of deflationary pressures amid an aging demographic, the recent change in monetary policy could both stimulate the Japanese economy as well as increase exports in a significant way. This maneuver, however, could trigger a response by other central bankers who, up to this point, have been more subtle in their own attempts to competitively devalue their own currencies.

With Japanese government debt at a level that represents 240% of Japan’s GDP last year, the fear of a deeper economic disadvantage has clearly pressured government officials to make this bold move. Gold in Yen terms will likely benefit greatly in the coming year as the value of Yen declines against major currencies. The prospect of a steeper yield curve, however, could present a budgetary challenge for Japan’s central bank as the cost of funding it debt grows.

Nevertheless, the Nikkei 225 is poised for a sharp move higher with Japan’s new policies already set into motion.