Top 4 catalysts for the Nikkei 225 and Topix indices this week

Japan stocks surged on Monday morning as investors embraced a risk-on sentiment following the deal between the US and Iran. The Nikkei 225 surged to a record high of ¥69,593, while the Topix soared to ¥4,023. This article looks at the top catalysts for Japanese stocks this week.

Nikkei 225 and Topix indices to react to US-Iran deal

The main catalyst for Japan stocks this week is the US-Iran deal that was reached on Sunday. This deal has ended the Iran-US war, with President Donald Trump celebrating the reopening of the Strait of Hormuz.

Crude oil prices plunged, with the West Texas Intermediate (WTI) being on the verge of moving below $80. Brent has also continued its downward spiral, and is now down by over 30% from its highest point this year.

This deal is important for Japan because of its reliance on Middle East oil. As a result, the country will now start buying loads more shipments of oil to refill its strategic reserves. Most importantly, it will help to cap inflation, which has remained at an elevated level in the past few months. 

Bank of Japan interest rate decision 

The other key catalyst for the Nikkei 225 Index this week is the Bank of Japan (BoJ) interest rate decision that happens on Tuesday this week. This decision comes at a time when the Japanese yen has crashed to 160 against the US dollar.

The BoJ believes that this 160-milestone is an important one. Indeed, the last time the currency sunk to that level, the BoJ responded by pumping over $30 billion to the market.

Most analysts believe that the bank will decide to hike interest rates by 0.25% in this meeting. If this happens, it will push rates to 1%, the highest level in over three decades. This explains why Japan bond yields have jumped in the past few months, with the ten-year peaking at 2.80%.

Still, there is also a risk that the BoJ will decide to pause on hiking rates because of the happenings in the Middle East and the falling energy prices.

Federal Reserve interest rate decision

The other key catalyst for the Nikkei 225 and Topix indices is the upcoming Federal Reserve decision that happens a day after the one by the BoJ. Economists expect the Fed to leave interest rates unchanged in this meeting. Officials will likely cite the need for more time to observe the state of the economy.

The most recent numbers showed that the US economy added over 172k jobs in May, while the consumer and producer inflation jumped to 4.2% and 6.5%, respectively. Inflation has remained above the Fed’s 2% target for over five years, putting the bank under pressure.

Key Japan macro data

The other minor catalyst for the Nikkei 225 and Topix indices is that Japan will publish key macro data this week. The first key data will be the country’s export and import numbers on Wednesday this week. Economists expect the data to show that exports jumped by 16% in May, while imports soared 12%.

Japan will next release the latest inflation statement on Friday. Economists expect the data to show that the headline consumer inflation rose 1.6% in May, while the core figure remained unchanged at 1.9%.