Japan Prime Minister Fumio Kishida Resigns – NIKKEI225 Stalls

On the heels of a corruption probe the current prime minister of Japan, Fumio Kishida, decides to stand down as party leader next month.

While global stocks are enjoying an AI-tech fueled rally, the NIKKEI225 is down 0.4% on the day. Fumio Kishida was set to face reelection as party leader, and consequently remain prime minister.

However, he has decided to forfeit his position as leader of the Liberal Democratic Party, which also means he will be replaced as prime minister. The decision comes after the country experienced rising inflation, and a scandal linked to untransparent donations to politicians.

In Kishida’s words “Politics cannot function without public trust. I made this heavy decision thinking of the public, with the strong will to push political reform forward”. Which in comparison is a far cry from the ethics of most politicians in the west.

Japanese stocks have followed global stocks lower recently, with the added factor of central bank policy tightening. The hawkish stance from the BoJ has been justified by rising inflation, which is just over the central bank’s target of 2%.

In reality, the restrictive monetary policy seems to be justified by the desire of the government to reign in a falling yen. Various government officials have commented on the strain on inflation a weak yen is causing.

At the July central bank meeting the BoJ took the market somewhat by surprise and hiked rates. The NIKKEI225 fell sharply, and BoJ officials stepped in to calm the markets by saying that further hikes would not happen while capital markets were unstable.

Technical View

The day chart below for the NIKKEI225 shows a market in a bear trend. The latest dip to 30,694 has given way to strong correction. However, the market now finds itself battling with a major resistance level of 36,675.

That level (green line) coincides with the last dip before the rally to the all-time high of 42,465. The market is also finding resistance from the kijun Sen (crimson line) of the Ichimoku system. If today’s candle fails to break above this level, I would expect the market to test lower again.