Nikkei 225 index analysis: Triple top pattern forms

Japanese stocks retreated slightly on Friday as investors reflected on the latest Federal Reserve and Bank of Japan (BoJ) interest rate decisions. The closely-watched Nikkei 225 index dropped to ¥32,160, the lowest level since August 29th. It has dropped by more than 3.5% from the highest point this year. The USD/JPY pair continued its rebound.

Bank of Japan decision

Investors have focused on the actions of key central banks this week. In the US, the Federal Reserve delivered a hawkish pause. It left interest rates unchanged between 5.25% and 5.50% and hinted that it will deliver another 0.25% hike later this year. The bank also predicted that rates will have to remain at an elevated level for longer.

In Europe, the Swiss National Bank (SNB) and Bank of England (BoE) left interest rates unchanged. Economists were hoping that the bank would hike rates by 0.25%. In Indonesia, the central bank decided to slash interest rates by 0.25%.

The Nikkei 225 index dropped and then pared back some of the losses after the Bank of Japan left rates unchanged at -0.10%. It also left its yield curve control program intact in that it will allow the 10-year to fluctuate between -0.50% and 0.5%. 

The BoJ decision came shortly after the country’s statistics published strong consumer inflation data. The headline consumer price index rose by 3.2% in August while core CPI jumped to 3.1%. Inflation has remained above the BoJ target of 2.0% in the past few months. 

As such, analysts believe that the BoJ will ultimately hike rates, especially if the Japanese yen plunges to 150.

The Fed was the biggest catalyst for the Nikkei 225 index since it hinted that rates would remain higher for a longer period. In the aftermath, American stock indices like the Dow Jones, Nasdaq 100, and S&P 500 retreated for three straight days.

The top-performing Nikkei 225 index companies in the past 30 days were Mitsui Engineering, Kobe Steel, Mazda Motor, Sumitomo Mitsui Financial, and Eneos Holdings. All these shares have jumped by more than 20% in the past 30 days. The top laggards, on the other hand, were companies like Advantest, Shiseido, Daiichi Sankyo, and Yamaha.

Nikkei 225 index forecast

The daily chart shows that the Nikkei 225 index has been in a tight range in the past few months. After peaking at a multi-decade high of ¥33,796 in June. It has formed what looks like a triple-top pattern. The index has also slipped below the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has drifted downwards.

Therefore, the Nikkei index will likely remain in this range in the coming days. It will remain at the key support level at ¥32,000. Any more Nikkei 225 index rally will be confirmed if the price moves above the key resistance at ¥33,796.