Nikkei 225 Index outlook: top catalysts for Japan stocks this week

The Nikkei 225 Index dropped slightly on Monday as investors boosted the odds of Bank of Japan rate hikes after the recent macro data. It dropped to 65,325, down by 10% from its highest point this year. This article looks at some of the top catalysts for Japan stocks this week.

Nikkei 225 Index to react to key Japan macro data

The Nikkei 225 Index retreated after a report showed that Japan’s industrial production rose 3.6% YoY and 0.1% YoY in July. The monthly increase was better than the expected retreat of 0.7%. 

Another report showed that retail sales rose by 4% in July, also higher than the median estimate of 3.2%. These numbers mean that the Japanese economy is doing relatively well. 

The reports came two days after the statistics agency released the fairly strong Tokyo inflation numbers. Later this week, S&P Global will publish the latest manufacturing and services PMI numbers. 

These numbers will provide more information about the Japanese economy and what to expect. Most analysts now predict that the BoJ will hike interest rates later this year. This partly explains why Japan bond yields have remained at an elevated level this week.

US-Iran tensions

The Nikkei 225 Index is also falling as investors react to the latest developments on the US and Iran. The US launched limited strikes overnight, hitting Iranian rocket launchers near the Strait of Hormuz.

While the attacks were limited, Iran will likely decide to retaliate since officials belive that they are in a strong position militarily. An escalation will lead to higher crude oil prices, with Brent and West Texas Intermediate rising to $90 and $85, respectively. 

Japan relies substantially on the Strait of Hormuz and oil imports and the crisis may have an impact on the economy and key companies. 

Jackson Hole and key US macro data

The Nikkei 225 Index is also reacting to last week’s Jackson Hole Symposium, in which Kevin Warsh delivered a highly hawkish statement. He maintained that US inflation was still at an elevated level and that the Fed will do its best to bring in to the 2% target.

In the aftermath, most traders boosted their interest rate hike probability. Most analysts now expect that the Fed will hike rates in the December meeting, a move meant to bring inflation to the 2% target.

In line with this, Japan stocks will react to the upcoming macro data from the US, like nonfarm payrolls (NFP) and manufacturing and services PMIs.

Nikkei 225 Index technical analysis

Nikkei 225 Index chart | Source: TradingView

The daily chart shows that the Nikkei 225 Index has come under pressure in the past few days, moving from 69,577 earlier this month to the current 65,361. It has dropped below the 50-day moving average and is about to drop below the key support level of 64,653. 

The Relative Strength Index (RSI) and the MACD indicators are all pointing downwards. Therefore, the index will likely drop further, potentially to the psychological level of 65,000.