Nikkei 225 index: bullish pattern forms after new Japan stimulus

The Nikkei 225 index has bounced back in the past few days as the USD/JPY exchange rate sits at its highest level in more than three decades. The index jumped to a high of ¥32,700, much higher than last month’s low of ¥30,250. It is nearing the year-to-date high of ¥34,000.

The Nikkei 225 index has been in a strong bullish trend in the past few months as investors moved back to Japan stocks. This rebound has coincided with the surge of American stocks. 

The Dow Jones index jumped to a high of $34,113, about 5.50% above the lowest point in October. Other indices like the Nasdaq 100 and S&P 500 index have also jumped. In most cases, these global indices tend to have a close correlation with each other.

The other main catalyst for Japan stocks is the decision by the government to launch a new stimulus policy. The country’s cabinet agreed to a new $44 billion stimulus package to supercharge the economy. 

These funds will come from issuing new government bonds and from 3.9 trillion surplus funds from last year’s budget. The funds will also include additional aid for low-income households and tax rebates.

The new stimulus package will be welcomed by Japan company executives. However, it will likely make things worse for Japan and its vulnerable currency, which has plunged this year. Japanese yen has crashed by more than 30% in the past few years.

Stimulus packages, especially those in the United States, have helped to fuel inflation and economic hardship in the economy. As part of its COVID-19 response, the American government and the Fed printed trillions of dollars, which they gave to individuals and companies.

Japan’s stimulus is coming at a time when the economy is not in a bad shape. While inflation has risen, it remains below its comparative comparative countries like the United States and South Korea.

The biggest mover in the Nikkei 225 index was Softbank. Softbank share price has jumped by more than 1% even after the company’s WeWork filed for bankruptcy protection. It has lost over $15 billion in WeWork. Softbank’s net sales came in at 1.6 trillion yen while its net loss was over 931 billion yen.

Sony, also one of the biggest entertainment companies, said that its revenue came in at 2.8 trillion yen while its operating profit was 263 billion. The biggest weakness was its chip business.

Nikkei chart by TradingView

The daily chart shows that the Nikkei 225 index has made a bullish comeback in the past few weeks. It has retested the important resistance at ¥32,500, the upper side of the descending channel. It has remained above the 50-day and 25-day moving average while the Relative Strength Index (rsi) has moved above the neutral point.

Therefore, the outlook for the Nikkei index is bullish for now since it has formed a falling broadening wedge pattern. If this happens, the next key level to watch will be at ¥33,956, the highest point this year.

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