Nikkei 225 continues to see a lot of volatility, as we are trying to recover from the recent selloff.
NIKKEI 225
Nikkei 225 rallied quite a bit on Monday to break above the crucial 51,750-yen level. Based on the idea that perhaps there is some type of hope for peace in the Middle East. The two sides at least are admitting that they are speaking now. So that is some progress, but the headlines continue to be very volatile just as most markets are.
We have fallen below the 51,200-yen level at one point, although it looks like we are trying to turn around and rally to recapture that 51,750-yen level again. We have seen the 200-day EMA offer a significant amount of support and that of course will capture the attention of technical traders.
Japan at a Crossroads
But it’s probably worth noting that Japan finds itself in a bit of a conundrum right now as traders look at this as a market that is going to be heavily influenced by exports and of course concerns about import costs causing massive inflation. There is a world in which the Bank of Japan has to raise rates as the market is going to try to price in any type of action.
This will cause more volatility. If the Bank of Japan raises rates, that obviously hurts some profitability, but it also brings in the question of what happens with the Japanese Yen. The US dollar has been trading right around 160 yen for a while now and that’s a major line in the sand.
If we break out to the upside in that currency pair it would make exports from Japan extraordinarily cheap, but at the same time you would have inflation start to run away as not only would the currency depreciation would continue to have a major effect on the inflationary headwinds, but you also have the problem where oil isn’t quite making it to Japan in the amounts that it had been.
With this being the case, I think we’re at a crossroads here. I am watching very closely, and I suspect that sooner or later we will get an impulsive candle in one direction or the other to tell us where the next 5% of gains or losses come from.