Japan’s Nikkei 225 Index Ready To Breakout

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.



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