NIKKEI225 Suffers on Higher Bond Yields and Hawkish BoJ Expectations
The 30-year JGB auction saw an increase in the average yield again, from 1.992% at the last auction to 2.156% overnight.
The 30-year JGB auction saw an increase in the average yield again, from 1.992% at the last auction to 2.156% overnight.
The NIKKEI225 has been fighting with bullish momentum against the increasing perception of a hawkish stance from the BoJ. Various officials have stated that the government will intervene in the forex market to protect the yen.
And more recently, the BoJ has admitted that market intervention did take place between April 26 and May 29. A weaker yen may favor the stock market as companies become more competitive thanks to cheaper prices.
However, a weak currency can also cause domestic price pressure from imported inflation. The BoJ may also choose to defend the yen by intervening in the bond market. The central bank has been buying fewer JGBs to help push yields hire, which the stock market doesn’t like.
Today’s auction result is clear evidence of the bullish stance the BoJ is taking. Pushing bond yields higher would also match the BOJ’s narrative on interest rates, which are likely to go up at some point to fend rising inflation.
This adds a conundrum, most central banks are cutting rates, the BoC started with a rate cut yesterday. The ECB is expected to follow today, and the Fed later in the year, Japan will be on an opposing course to major economies.
A course that may lead to more bond investments with higher yields and a strengthening yen.
Technical view
Today’s candle in the day chart below for the NIKKEI225 has found major resistance from the topside of the cloud. Yesterday, the market failed to break above the level, and today the market, so far, has made a failed attempt.
Failure to breach the cloud should lead to further downward price action, with the next support at the bottom of the cloud at 38,354. If the resistance of the topside of the cloud breaks, the next resistance is at 39,987 (blue line), a previous high from April 12.
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