This week, Japan's Nikkei Stock Index reached the 40,000 threshold for the first time in three months due to a weaker Yen. The yen reached a new 37-year low in the upper 161 range against the U.S. dollar, bolstering exporters.
Why is Nikkei 225 increasing?
Recent data shows that the US Dollar reached its highest level since December 1986, reaching 161.74 yen, creating the major buying factor for Japan's stock market. Speculation has been that U.S. inflation could accelerate if former President Donald Trump returns to office and implements additional corporate tax cuts, resulting in fiscal expansion.
The benchmark 10-year Japanese government bond's yield increased by 0.025 percentage points from Monday's close to 1.085 percent as investors sold the debt in anticipation of increased inflation and rising U.S. long-term rates in the event of a second Trump Presidential term.
Effects of Higher Nikkei 225 Price
As per the available data, insurance and other financial concerns contributed to the increase in stock prices, as brokers anticipated an increase in profits due to Japan's rising long-term interest rates.
Also, insurance, precision instruments, and transportation equipment were among the top gainers in the prime market.
According to brokers, auto and other export-related issues were in demand in the stock market as the weaker yen spurred optimism about earnings reports for the April-June period, which are scheduled to be released later this month.
Brokers observed that the Nikkei had encountered difficulties in recent months due to earnings forecasts for the current fiscal year starting in April that were below market expectations.
Nikkei 225 Index Technical Analysis
In the daily chart of Nikkei 225, the recent downside pressure from the 41145.00 high found a bottom at the 38725.00 level. As the most recent price trades higher from the bottom, we may expect the buying pressure to extend in the coming days.
The volume structure shows a positive outlook for bulls, where the most active level since December 2023 has been at the 38748.00 level. The 100-day Simple Moving Average remains in line with the high volume level, which might work as an additional bullish factor for this instrument.
Based on the ongoing buying pressure, the Nikkei 225 is more likely to extend the bullish pressure, aiming for the 43784.00 Fibonacci Extension level. In this path, a consolidation and a bullish rejection from the 39441.00 level could increase the possibility of taking the price higher.
On the other hand, any immediate bearish reversal from the current area with a daily candle below the 38370.00 level could initiate a deeper correction toward the 37000.00 psychological point.
