NIKKEI225 Follows Global Stocks Higher After BoJ Keeps Rates on Hold

The central bank kept rates on hold overnight as the market anticipated. The rally yesterday was fueled by the BoJ pause on tightening and the Fed’s bumper rate cut.

The open today for the NIKKEI225 up 1.10%, shows a market that is continuing with the impulse from yesterday. Delaying further rate hikes is fresh air for the stock market. However, the recent strengthening of the yen has taken its toll on foreign investors.

Data released today shows that foreign investment in the Japanese stock market declined by ¥3,005 billion. That’s the largest drop in foreign investment in 10 years. The last time there was a decline from investors of this magnitude was in September 2023, when the NIKKEI225 was at 32,000.

The index lost 4.5% after that date, the drop then gave way to the start of a rally that took the NIKKEI225 to its all-time high. Inflation data released today shows a small increase in price pressure.

The YoY inflation rate rose to 3%, in line with analysts’ forecasts, from 2.8% last month, so no surprise. The surprise came from Inflation Ex-Food and Energy up to 2.0%, when forecasts were at 1.9%, unchanged from last month.

Inflation is creeping up, and it seems unlikely that the BoJ will keep rates steady for much longer. Considering the latest comments from the central bank’s officials offering forward guidance to a neutral rate of 1%.

Technical View

The day chart above for the NIKKEI225 shows a bear trend undergoing a major correction. The last two candles are above the Ichimoku cloud, but the lagging line (yellow) is still below the cloud.

Until the Lagging line breaks above the cloud this market is still technically in a bear trend. The latest bullish leg from point A to B failed to gain strong momentum. The indication of weakness is indicated by the RSI which failed to break the level of 70.

The market will find the next resistance at 38,864 (blue line), with further resistance at 39,447 (purple line) and 40,558 (orange line). To the downside, the market will find support on the cloud, which coincides with support from a previous low of 36,675 (green line).