NIKKEI225 Gets Some Support from a Dovish BoJ Monetary Policy Meeting

The BoJ withholds any decision on reducing the JGB buyback program, considered a dovish move.

The market had been expecting the BoJ to announce a reduction in its monthly JGB buyback program from ¥6 trillion to ¥5 trillion per month. The central bank intervention in the bond market has helped keep bond yields low.

The NIKKEI225 gained 1.27% on the day at one point after the news. Reducing the JGB buyback would have opened the door to a rate hike as early as the next meeting on July 31. What we can expect now is the BoJ will announce a reduction in its bond purchasing program at the July meeting.

The delay in the announcement means that a rate hike would be postponed to at least the meeting in September. The Japanese economy has not been performing very well, with GDP shrinking in Q1 2024 by 1.8% compared to the previous quarter.

That data alone wouldn’t warrant BoJ hawkish policy, but the central bank has another problem, protecting the yen. Reducing the purchases of JGB to push up bond yields is one tool. But that might not be enough, and the end game may eventually be a rate hike.

Technical View

The day chart below for the NIKEI225 shows a sideways market with a wide range from high to low over the past 18 sessions. The last 4 candles all failed to close above the bodies of the recent high on May 20.

The peak at 39,220 (orange line) gave way to a false breakout of the Ichimoku cloud. The market then recovered and has been trading with the cloud since then. The area of the cloud is considered no-man’s land, as it’s seen as an area of uncertainty.

The next support is the bottom of the cloud, at around 38,372, further support would be found at the recent low of 37,611 (purple line). To the upside resistance is at 38,893 (green line), a level the market failed to break today.

The market will find further resistance at the recent high of 39,220 (orange line), which is also a double top between points A and B.

ABOUT THE AUTHOR See More

Gino Bruno D'Alessio

Gino D’Alessio is a professional Forex trader with 20+ years of experience in the financial markets as a broker-dealer. Having worked in New York and London, Gino is regularly featured on Seeking Alpha. He completed the CAIA program in 2015, which also gave great insight into global macro factors. His main focus is FX majors, indices and commodities.

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