NIKKEI225: Uchida Says BoJ Will Not Hike Rates While Markets Are Unstable

The stock market found its footing again yesterday and is up 4.5% on the day after fears recede and dovish BoJ comments.

The BoJ Japan hiked rates at its last meeting on July 31, by 0.25%. Leaving the door open for further hikes before the year end. The central bank action sparked a 3-day selloff, where the NIKKEI225 lost 20.7% at one point.

To add to the bearish mood driven by a hawkish stance from the BoJ, the market also suffered the worse than expected jobs data that sparked recession fears in the U.S. As those fears receded, the BoJ governor’s comments have helped the Japanese stock market go green.

The comments have given confidence that the BoJ will not take action on rate hikes unless the economy can maintain some expansion. The main concern comes from price pressures due to wage increases, which may eventually oblige the BoJ to take action.

In the meantime, JGB yields are declining, which may also give stocks a helping hand. Yesterday’s 10-year auction declined from 1.091% previously to 0.926%.

Technical View

The day chart below for the NIKKEI225 shows a bear trend with the market below the Ichimoku cloud. If today’s candle closes green it would complete a 3-day reversal pattern (yellow area), which should lead the market higher over the next days.

Confirmation of a possible correction in the bear trend comes from the RSI. The RSI dipped below 30 and a close around this level would bring the indicator back above 30, signaling a possible retracement.

The market has found resistance at 35,329 (grey line), further resistance can be found at 36,675 (green line), which corresponds to the dip in a previous correction. To the downside, the market will find support at 33,837 (black line) and at 30,469 (blue line).