Nikkei 225 Index forecast as foreigners buy, Japanese yen crashes

The Nikkei 225 Index continued its strong rally this week as foreign investors continued buying and the Japanese yen plunged to its lowest level in weeks. It jumped to a high of ¥48,465, up by over 57% from the lowest level this year. 

Foreign investors are buying Japan stocks

The Nikkei Index and other Japanese indices, like the Topix have been in a strong uptrend this year. One reason for this is that foreign investors have continued buying these shares.

Data released on Thursday showed that these investors bought shares worth over ¥2.46 trillion, which is equivalent to $16.3 billion. These purchases happened after the victory of Sanae Takaichi, who has favored Abenomics-like policies.

Most notably, inflows into Japanese stocks happened after three weeks of intensive selling as investors anticipated that a more hawkish official would win the seat. 

The ongoing Nikkei 225 Index jump is being led by companies in the defense and technology industries. Some of the most notable gainers are companies like Mitsubishi Heavy, Japan Steel Works, and IHI Corp. Technology companies like those in the semiconductor industry have also had substantial inflows.

Foreign investors have been buying Japanese stocks in the past few year after Warren Buffett moved into the market. He invested in five trading houses – Mitsui, Itochu, Mitsubishi, Sumitomo, and Marubeni – during the pandemic and then added to their position. 

Japanese yen crash continues

The Nikkei 225 Index has also jumped as investors reacted to the relatively weak Japanese yen. Data shows that the USD/JPY exchange rate has soared from a low of 139.95 in May this year to the current 152.50, its highest point since February. 

The Japanese yen has slumped partly because of the ongoing US dollar rebound. It also plunged as investors reacted to Takaichi’s victory, which they believe will lead to more stimulus and an easy-money policy. 

The yen slump coincided with the soaring Japanese bond yields. Data shows that the 30-year rose to 3.30%, while the ten-year jumped to 1.70%. 

Looking ahead, the next major catalyst for the Nikkei 225 Index will be the earnings season. Fast Retailing and Seven & I Holdings have already published their earnings. 

Later this month, companies like Hitachi, Chugai Pharma, Fujitsu, Canon, and Tokyo Gas will publish their financial results.

Nikkei 225 Index technical analysis

The daily timeline chart shows that the Nikkei Index has been in a strong bull run in the past few months. It has jumped from a low of ¥30,690 on April 7 to the current ¥48,403.

The index has jumped above the important resistance level at ¥40,227, the highest point in October and November last year. It was also the highest level in January. 

The Nikkei 225 Index has remained above the 50-day and 100-day Exponential Moving Averages (EMA). Also, top oscillators like the Relative Strength Index (RSI) and the MACD have continued rising.

The RSI has formed a broadening wedge pattern. Therefore, the index will likely continue rising as bulls target the key resistance at ¥50,000. 

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