Buyers Piling Into Nikkei 225 As BOJ Talks Intervention

After Britain’s vote to opt out of the European Union stunned financial markets, Nikkei 225 shares immediately plunged viciously to as low as 14812.90 – the lowest price since February 13, 2016. Yet, the Japanese N225 has experienced a sharp turnaround thanks to Bank of Japan’s intervention warnings.

The Japanese benchmark closed higher on Tuesday although the declining stocks outnumbered the rising ones by 131 to 83, and 11 ended unchanged. The increasing stocks gains more ground, led by gains in materials shares.

On Sunday (26/6), China’s top economic planner announced that the Chinese authorities aimed to cut 45 million tons of Chinese steel capacity this year, along with a further 280 million tons of coal production. This plan would help solve overcapacity and uneconomic production slack across the industrial sector and boost the steel price higher. Accordingly, steel and mining companies in the Nikkei 225 shares experienced a rise in their stocks.

The Nikkei 225 shares also witnessed a big climb from the gains in pharmaceutical industry sector after a torrent of investment into regenerative medicine in Japan. Japan’s Ministry of Economy, Trade and Industry estimated that the regenerative medicine sector would become a $950 million industry by 2020 and grow ten times to $10 billion by 2030. The potential growth of this field has attracted investor interest towards the pharmaceutical industry sector, supporting its stocks higher.

The fallout from Brexit on Friday (24/6), swayed global financial markets and prompted investors to flock into safe haven assets including the Japanese yen. Consequently, the benchmark Nikkei 225 had tumbled 7.92% on the back of the strength in the Japanese yen on Friday.

Nevertheless, on Monday (27/6), an emergency meeting was held by the BOJ before its scheduled July 28-29 gathering. Japanese Prime Minister Shinzo Abe instructed Finance Minister Taro Aso to closely monitor currency markets and take appropriate measures with a view to stabilizing the financial markets and the economy.

Additionally, the government is reported to be expanding its monetary stimulus to more than $98.03 billion in total. BOJ’s warnings of market intervention to stem excessive yen strength have eased investor concerns about recent market uncertainties.

Later today, the Ministry of Economy, Trade and Industry is due to publish the retail sales report in May. The data is estimated to come in at -1.6%, lower than the reading of minus 0.9% in April.

mky d1

Fig. Nikkei 225 D1 Technical Chart

On the daily chart, the index is moving upwards after nearly hitting the support at 14771.07, formed on February 12, 2016. However, the two moving averages moving above the price chart indicates that a bearish market is in the making. The trend indicator encourages a short position with a red arrow casting a shadow on the price since June 13, 2016.  The market is anticipated to tick up slightly to the level of 15605.32 before falling back.

Trade suggestion

Sell limit 15605.32, Take profit at 15416.65, Stop loss at 15635.51

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