NIKKEI Falls 0.85% on the Day Due to Bond Purchasing Uncertainty

The Japanese stock market faces doubts regarding the BoJ JGB purchasing program. After the last meeting no details were offered as to the size of monthly purchases.

The NIKKEI225 has been suffering concerns of a rate hike by the central bank. At the same time, a weakening yen is adding to the perception that the BoJ will take action to support its currency.

While an interest rate hike looks improbable given the lates GDP data showing a contraction in the first quarter of 2024, other tools are still available. The JGB purchasing program was being used to keep bond yields low as the BoJ bought bonds in the market to prop up prices.

In an effort to support the yen, the central bank can reduce the amount of bonds it purchases, which would create an increase in bond yields. Higher yields will help support the yen but will create a drag for the stock market as fixed income assets become more appealing.

Investors were hoping to hear just how much the BoJ would cut its bond purchasing program. However, they were let down, with no news regarding their future purchases. The uncertainty has weighed heavy on the market and this week started with the sentiment in mind.

Technical View

The day chart below for the NIKKEI225 shows a sideways market hovering at the low of its range. The most important aspect of today’s candle is that a possible close below the cloud would trigger a bear tread signal.

That signal would also match the double top pattern that was produced between points A and B. Where both highs on these points were also attempt to break above the Ichimoku cloud that failed.

Should we get a close below the cloud today, the next support would be at the recent low of 37,611 (purple line). The next support from there would be at the low from May of 36,732 (black line).

To the upside the market will find resistance at 39,000, which coincides with the top of the cloud. The next resistance would be at the double top area of 39.220 (orange line).