Nikkei225 held back by yen devaluation
During today's Asian trading day, Japan's Finance Minister expressed concern over the yen's remarkable weakness against the dollar, reaching a 34-year low. Faced with this situation, the Japanese government is considering taking decisive measures, "Decisive Steps", as expressed by Shunichi Suzuki in autumn 2022, and November 2023, when it intervened in the currency and yesterday he repeated this expression again, forcing the aforementioned historical low to a new state intervention. From last Thursday until yesterday, Wednesday, the Japanese index corrected around 1000 points by -2.25% reaching 40181.08 points, rising again yesterday by 1.97% reaching 40971.02 points and closing the Asian session at 40589.65 points. These strong fluctuations coincide with two elements, on the one hand, as we said, the changes in the Yen, which has reached a devaluation high of ¥151.97 and reduced its price to ¥151.94 after the government's notification.
Markets are assessing the limits of Tokyo and the index in anticipation of significant government intervention, which may signal a new economic cycle high. Speculative investors may push for a devaluation of the yen against the dollar in this currency cross to benefit the market in the coming weeks. This move, a policy change since 2007, may have a significant ripple effect, especially as the yen is used in carry trades, where investors borrow in a low interest rate currency and invest the proceeds in a higher yielding currency. Japanese investors can also earn much higher returns abroad, depriving the yen of support from repatriation flows. During this quarter the yen has been one of the worst performing currencies falling 7% against the dollar.
On the other hand, the Nikkei 225 has performed well, closing the last session at 40791 points, up 0.73% from the previous session, with apparent interest from foreign buyers. An appetite for Asian stocks by non-domestic investors, especially those seeking to diversify in the face of the high appreciation of the main US and European indices. This, coupled with the affordability for foreigners to buy Asian stocks, is driving the index higher.
However, from a technical point of view, looking at the technical aspect, the currency has made several breakouts from the strongest trading zone, which is where the strongest trading zone is located, with a strong control price at 38432.38 points. The divergence RSI shows us 48.66% with the average being 57.33%, so there is no excess demand at this point. What does make a lot of sense is that during the Asian session the price has corrected along with the RSI in a very strong way, and it coincides with the news from the Japanese government. If the predictions of a correction in the price of the currency come true, the Japanese index could face downward pressure, looking for support zones around 40186 points, as it will be less interesting to invest in the Nikkei225 making it return to its current support zone. In the event that this prediction does not come true, and investors continue to maintain their appetite for the Japanese market, the index will continue to enjoy success and may once again seek the current highs at 41121.59 points.
Markets are assessing the limits of Tokyo and the index in anticipation of significant government intervention, which may signal a new economic cycle high. Speculative investors may push for a devaluation of the yen against the dollar in this currency cross to benefit the market in the coming weeks. This move, a policy change since 2007, may have a significant ripple effect, especially as the yen is used in carry trades, where investors borrow in a low interest rate currency and invest the proceeds in a higher yielding currency. Japanese investors can also earn much higher returns abroad, depriving the yen of support from repatriation flows. During this quarter the yen has been one of the worst performing currencies falling 7% against the dollar.
On the other hand, the Nikkei 225 has performed well, closing the last session at 40791 points, up 0.73% from the previous session, with apparent interest from foreign buyers. An appetite for Asian stocks by non-domestic investors, especially those seeking to diversify in the face of the high appreciation of the main US and European indices. This, coupled with the affordability for foreigners to buy Asian stocks, is driving the index higher.
However, from a technical point of view, looking at the technical aspect, the currency has made several breakouts from the strongest trading zone, which is where the strongest trading zone is located, with a strong control price at 38432.38 points. The divergence RSI shows us 48.66% with the average being 57.33%, so there is no excess demand at this point. What does make a lot of sense is that during the Asian session the price has corrected along with the RSI in a very strong way, and it coincides with the news from the Japanese government. If the predictions of a correction in the price of the currency come true, the Japanese index could face downward pressure, looking for support zones around 40186 points, as it will be less interesting to invest in the Nikkei225 making it return to its current support zone. In the event that this prediction does not come true, and investors continue to maintain their appetite for the Japanese market, the index will continue to enjoy success and may once again seek the current highs at 41121.59 points.
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