Nikkei 225: The index can confirm a break of 15,000 it would be a medium-term bullish development

A strong handover from US and European markets overnight, positive investor sentiment in Asia and a weaker yen have helped push the Nikkei 255 back above 15,000. The index may be about to test the bottom of its daily Ichimoku cloud, currently around 15,200. A break here would also coincide with a push above the pair’s 50% retracement level from this year’s high, which could be the start of a more prolonged rally towards the index’s almost 6.5-yr high.

However, there are numerous headwinds which could stall a rally in the Nikkei. The most direct would likely be a negative turn in global investor sentiment which sends investors running away from risk assets, like equities, and towards safe haven ones, like the yen. This is doubly bad for the Nikkei as an increase in the value of the yen makes Japan’s exports less competitive and is generally thought to hinder economic growth. In regards to investor sentiment, a deterioration in risk appetite that stems from within Asia would be particularly bad as Japan relies heavily on the region for trade and, therefore, it would likely encourage a rebalancing of capital out of Japanese equities.

Furthermore, this week’s slew of economic data out of Japan is very important. Expectations are running high for inflation, industrial production and retail sales figures, thus disappointing figures may adversely affect investor sentiment. National CPI is expected to increase 1.3% y/y and 0.7% y/y excluding food and energy prices. Industrial production and retail sales are expected to increase 2.8% and 1.3%, respectively, in January. However, even if the figures are poor, it may increase bets that the BoJ will engage in more monetary easing which could weaken the yen.

From a technical standpoint, if the index can confirm a break of 15,000 it would be a medium-term bullish development, as the level has been pivotal in past price action. Also, there is a bullish crossover in MACD which suggests that momentum is to the upside at the moment. As we stated earlier, there is a slew of resistance around 15,150/220.