Nikkei 225 index gets ready for a big move: will it rise or fall?

The Nikkei 225 index remained under pressure on Friday morning after Japan published the latest GDP data and Jerome Powell reiterated that the Fed was not in a hurry to cut rates. It was trading at ¥38,840, a few points below last month’s high of ¥40,228.

Japan GDP data

The Japanese economy slowed in the fourth quarter as global demand slowed. According to the statistics numbers, the economy slowed from 0.5% in Q2 to 0.2% in Q3, meeting what analysts were expecting.

The economy slowed from 2.2% to 0.9% in the same period. This slowdown was mostly because external demand dropped by 0.4%, much higher than what analysts were expecting. It was offset by an increase in private consumption, which rose by 0.9% during the quarter. 

These numbers mean that the Bank of Japan will unlikely increase interest rates again in its final meeting of the year which is scheduled on December 19.  It left rates unchanged in the last meeting.

The most recent data showed that the country’s inflation was moving downwards. It slowed from 3.0% in August to 2.5% in September, a figure that may continue falling. 

The BoJ has left interest rates unchanged in the past few meetings. After hiking rates to 0.25% in August, it has maintained the status quo as officials embraced a wait-and-see approach. Analysts don’t expect the bank to deliver more cuts in the coming months.

Powell is not in a hurry to cut rates

The Nikkei 225 index also reacted to a statement by Jerome Powell, the head of the Federal Reserve. He reiterated that the bank was not in a hurry to cut interest rates because the economy had avoided a hard landing and was doing fairly well.

He said that a week after the bank slashed interest rates by 0.25% in a bid to support the economy. It has now slashed them by 0.75% in this cycle, and analysts expect several more to come by the end of 2025. 

American and Japanese companies do well when the Fed is not hiking interest rates because it incentivizes investors to move from bonds to equities. This explains why top American indices like the Dow Jones and the S&P 500 indices are sitting at their all-time highs.

The Nikkei 225 index has also reacted to mixed corporate earnings from some of the top companies in Japan. Firms like Mitsubishi UFJ, Sumitomo Mitsui, Mizuho, Japan Post Bank, and Japan Post Insurance published strong results that were better than expected.

Some of the most best-performing companies in the Nikkei 225 index were Japan Steel Works, Mizuho Financial, Nissan Motor, Dainippon Screen, Concordia Financial, and Tokyo Electric Power. All these stocks jumped by over 4% on Friday. 

On the other hand, some of the top laggards were companies like Dentsu, Nexon, Asahi Holdings, Ebara, Rakuten, and Recruit Holdings.

Nikkei 225 index analysis

The daily chart shows that the Nikkei 225 index has moved sideways in the past few weeks. It has formed a symmetrical triangle pattern, which is nearing its confluence level. 

Also, the index is loitering at the 50-day and 100-day Exponential Moving Averages (EMA). The MACD and the Relative Strength Index (RSI) have all moved sideways in the past few days. A closer look shows that the MACD is also forming a bearish divergence pattern.

Therefore, at this point, the Nikkei 225 index could break out in either direction. A bullish breakout could see it retest the year-to-date high of ¥42,412, which is about 10% above the current level. On the other hand, a bearish breakout could see it drop to ¥37,000.