NIKKEI225 BoJ Summary Points to Hawkish Stance

Highlights from the summary of opinions from the BoJ’s recent policy meeting show board members raised the possibility of hiking interest rates.

Comments from the summary show that the BoJ are concerned about lingering inflationary pressure. One board member stated that “There is a possibility that prices will deviate upward from the baseline scenario if another pass-through of recent cost increases to consumer prices happens”.

In light of supporting raising interest rates the same member also added “It is therefore necessary for the bank to consider whether further adjustments to monetary accommodation are needed from the perspective of risk management”.

These seem very hawkish comments and we now know that an interest rate hike is on the table. The NIKKEI225 opened higher today and has maintained most of its overnight gains up 0.65%.

The central bank will give details of the size of reduction in its JGB purchasing program at its next meeting in July. The bank has used bond intervention to increase yields and to defend a tumbling yen.

A weak yen may add to the incentives for the BoJ to raise rates, as a high USD/JPY rate will create price pressure through imported inflation.

Technical View

The day chart below for the NIKKEI225 shows a market that has been trading within the Ichimoku cloud over the past 6 sessions. This area has also coincided with a fairly tight price range.

The cloud, also known as no-man’s land, is an aera of uncertainty, which is also evident from the sideways trend. A breakout above or below the cloud should give rise to the next trend with resistance at 39,447 (purple line), corresponding to a previous high.

On the downside the first minor support is at 37,915 (blue line), and further down the major support is at 37,599 (red line), which corresponds to a dip on May 30.

A breakout of the cloud should also coincide with a close above or below the blue area. And consequently above the purple line or below the blue line.

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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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