The Nikkei 225 Index Futures (CME: NIY) are basking in the glow of a resurgent Japanese stock market and are looking to close a second consecutive week of gains after appreciating over 1.1% during the week to reach a year-to-date appreciation of over 8.2%. The Japanese market shrugged off Wednesday’s decline, fuelled by easing inflationary pressures and a dovish Bank of Japan (BoJ) outlook.
Japan’s headline CPI dipped to 2.6% in December, a 17-month low, soothing nerves about aggressive BoJ tightening. This dovish tilt has invigorated bulls, seeking refuge from global rate hike jitters. Technology stocks like Tokyo Electron and Renesas Electronics surged, echoing Wall Street’s tech rally and highlighting Japan’s export prowess. Rakuten’s impressive December sales figures further bolstered investor confidence.
The two-day BoJ meeting next week takes centre stage. Investors widely anticipate the central bank to maintain its ultra-loose monetary policy, which could further prop up equities.
Technical
The 4-hour chart shows that the Nikkei 225 Futures are currently trading within a horizontal channel, consolidating near the key resistance level of 36,170. Price action remains comfortably above the 20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line), indicating underlying bullish momentum. However, the flat RSI suggests a temporary pause in the uptrend, with investors awaiting the BoJ’s decision before committing further.
With the price action confined within a horizontal trading pattern, trading opportunities could exist as the price oscillates between the 23.60% Fibonacci retracement level (35,340) and the resistance level at 36,170. A break above 36,170 could bring the resistance levels at 36,550 and 37,000 into play.
However, a break below the 23.60% Fibonacci retracement level would leave the 38.20% Fibonacci retracement level (34,380) and 50.00% Fibonacci retracement level (34,420) as the next levels of significance lower.
Summary
The Nikkei 225 Futures are well-positioned for further upside potential, but the BoJ’s decision next week will be a crucial catalyst. A dovish outlook could propel the index towards new highs, while hawkish signals could trigger a pullback.
Sources: TradingView, Ministry of Internal Affairs & Communications, Trading Economics, Reuters, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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