The Nikkei 225 index, which includes the biggest Japanese stocks, has remained under pressure this year as the Japanese yen and government bond yields rose. The index retreated to a low of ¥38,400, down 5.40% from its highest level this year. So, what’s next for the index ahead of key Japanese company earnings?
Japanese yen and bond yields
The Nikkei 225 index’s weakness is likely because of the hawkish Bank of Japan (BoJ) sentiment. Unlike other central banks, the BoJ has maintained a fairly hawkish tone this year as inflation and wage growth have continued rising.
The BoJ hiked interest rates in the January meeting, and analysts believe that it will deliver more hikes ahead. That’s because Japan now has a higher inflation rate than other countries, including the United States.
Japan stocks underperform when the BoJ is hawkish. A likely reason is that the central bank view leads to a stronger Japanese yen, which negatively impacts many Japan’s experters.
The Japanese yen has strengthened in the past few weeks, moving from this year’s high of 156 to 152 today. It has dropped to the lowest level in weeks, a trend that may continue later this year.
Japan’s government bond yields continued rising after the BoJ ended the yield curve control program. On Friday, the 10-year yield rose to 1.30%, the highest level since 2011. The five-year yield has risen to 0.98%.
These numbers mean that for once in a long time that Japanese investors can receive a return by just investing in government bonds. As such, many of them have rotated from the struggling stock market to these bonds.
Key Nikkei index earnings ahead
The next key catalyst for the Nikkei 225 index will be key earnings from some of the biggest companies in Japan.
Softbank, the ninth biggest company in Japan, will be one of the top companies to watch when it publishes its results on February 12. These numbers will come at a time when technology valuations have jumped and when the firm is investing aggressively in artificial intelligence (AI). Just recently, it teamed with Oracle and OpenAI to invest in US AI projects.
The other notable name to watch will be Recruit Holdings, the fifth-biggest names in Japan, that releases its results on Tuesday. Recruit, the parent company of Indeed and Glassdoor, has seen its stock drop to ¥10,800.
Other top Nikkei 225 index companies to watch will be Shiseido, Yamaha Motor, Rakuten Bank, Sony, Japan Display, Honda Motor, Nissan, ENEOS, and Tokio Marine.
Honda and Nissan will be watched after the latter canceled merger talks, a move that analysts believe is a good one for Honda.
Nikkei 225 index analysis
Nikkei chart by TradingView
The daily chart shows that the Nikkei index has remained under pressure in the past few months. It has retreated to ¥38,787, down from ¥40,380 this year.
The index has moved slightly below the key support at the 50-day moving average. Most notably, it has formed an ascending channel, and has now moved slightly above the lower side.
Therefore, the index will likely remain in this range this week. The next key support and resistance levels to watch will be at ¥38,000 and ¥40,000.
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