Nikkei 225 Index analysis after the BoJ interest rate decision

The Nikkei 225 Index drifted upwards and is hovering near its highest point since February after the Bank of Japan (BoJ) delivered its interest rate decision. It moved to a high of ¥38,550, up by over 25% from its lowest point this year. 

Bank of Japan interest rate decision

The Nikkei 225 Index has roared back after bottoming at ¥30,800 in April, mirroring the performance of other global indices like the Dow Jones, S&P 500, and Nasdaq 100.

The Bank of Japan left interest rates unchanged at 0.50% as analysts were expecting. Most importantly, as we wrote here, the bank tweaked its government bond purchases.

It will reduce its government bond purchases by about ¥400 billion or $2.76 billion to ¥3 trillion until March next year. The bank will then slow the cuts to ¥200 billion per quarter until March 2027. In a statement, Miki Den, a strategist at SMBC Nikko Securities, said:

The Nikkei 225 Index’s reaction was muted because it was in line with what analysts were expecting. Most analysts expected the bank to leave interest rates unchanged at 0.50%.

The bank is trying to balance the view that rising Japanese inflation and the view that risks caused by Donald Trump’s tariffs. 

Middle East crisis and Federal Reserve decision

The next key catalyst for the Nikkei 225 Index will be the Federal Reserve interest rate decision on Wednesday.

Analysts anticipate the bank to leave interest rates unchanged between 4.25% and 4.50%. The bank could decide to change its interest rate outlook after last week’s US inflation data, which showed that consumer prices rose gradually in May despite Donald Trump’s tariffs. 

The Federal Reserve interest rate decision has an impact on global indices. A dovish shift will supercharge the stock market as it will signal potential rate cuts later this year. 

The Nikkei 225 Index will also react to the ongoing crisis. There are signs that the crisis is escalating after blasts hit Tehran overnight. Trump chimed in and asked Tehran residents to flee.

Top Japan stocks by performance

Most Nikkei 225 Index stocks jumped on Tuesday after the BoJ interest rate decision. Oriental Land, Tokyo Electric Power, Dainippon Screen, and Nintendo stocks jumped by over 3%. Other top gainers were firms like Ebara, Sumitomo Chemical, and Konami.

On the other hand, the top laggards in the Nikkei 225 Index were companies like Nippon Steel, Hino Motors, Kawasaki Kisen Kaisha, Mitsubishi, and Chugai Pharmaceuticals. 

Nikkei 225 Index technical analysis

The daily chart shows that the Nikkei 225 Index bottomed at ¥30,800 in April and moved to a high of ¥38,480. It has found a strong resistance, where it has failed to move above since May. 

The index is about to form a golden cross as the spread between the 50-day and 200-day Exponential Moving Averages (EMA) near. 

Therefore, the index will likely have a strong bullish breakout, with the next point to watch being at ¥40,000. A drop below the support at ¥37,500 will invalidate the bullish view.