Market Analysis

Nikkei 225: In a recovery after good economic data

Japan kick-started the week with a 1.64 Jobs/applications ratio in September better than 1.63 expected by market analysts and was the highest since January 1974. Jobs/applications ratio measures the ratio between job applications and jobs, this is an indicator of the health of the employment in the economy. A higher than expected number should be taken as a positive impact on the economy.

Next came the Japanese unemployment rate, which edged down to 2.3% in September, comparing to 2.4% registered in the previous month and beating analysts’ estimates of 2.4%. It was the lowest jobless rate since May 2018. A higher than expected reading should be taken as negative for the Japanese economy, while a lower reading should be taken as a positive impact on Japans economy.

Yesterday came the Bank of Japan (BoJ) that has been under pressure, after half a decade of heavy money printing that failed to fire up inflation, to raise the interest rates and address the rising cost of extended easing, which has hit bank profits from near-zero rates.

Despite the pressure, the Bank of Japan (BoJ) left its key short-term interest rate unchanged at -0.1% at its October meeting and kept the target for the 10-year Japanese government bond yield at around 0%, as widely expected by market analysts. The central bank also revised down inflation forecasts again, saying that the momentum toward achieving the price stability target of 2% is not sufficiently firm despite years of massive monetary easing.

Since the beginning of 2018 until last Thursday close, the Japanese index is underwater with a loss of more than 4.0% nonetheless managed to end October with a drop of 9.8%, the darkest month since the beginning of this year. Meanwhile, on the weekly is stepping with the right foot showing a rise in excess of 2.0% and closed on the last day of the month in the green with over 0.5% gain. Furthermore, it remains in a distribution phase since late October.

On yesterday session, the Nikkei 225 initially rallied with a narrow range but found enough selling pressure near 21,965 to trim some of its gains and closed in the middle of the daily range, in addition, managed to close above Tuesdays’ high, which suggests a bullish momentum.

The stochastic is showing a strong bullish momentum although is still below the 50 midline but crossed above the oversold zone.

The Japanese index managed to make a new year-to-date high at 24,510 at the beginning of October but it was perhaps the last cookie left in the jar. Since then it began a sell-off but slowed down in mid-October and even tried to make a recovery that stalled near the 50-day moving average (Green) 22,974 at the time. The price stall at 22,974 kick-started the bearish trend again that came to a halt in late October after finding support at 20,815 (2015 high). Now ending October and going into November the Japanese index began an upward correction although facing a strong resistance around the 38.2 Fibonacci retracement at 22,226 where it might turn south and retest October low at 20,815.

Watch out this Week:

On Friday at 12:30 GMT (7:30 AM ET) The US Department of Labor will release the nonfarm payrolls data for October. Analysts are expecting a rise to 190K compared to the previous reading of 134K registered in September. The US remains an important market and trading partner of Japan so any impact on US economy may shake the Japanese economy as well. The top export destinations of Japan are the United States ($129B), China ($120B), South Korea ($46.4B), Other Asia ($39.3B) and Hong Kong ($32.9B).


Jp225 is a CFD written over Nikkei 225 futures.


Jp225 Dec ’18 Daily Candlestick Chart

Jp225 Dec ’18 Daily Candlestick Chart 


Written by Hugo O’Neill, External Analyst


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