Nikkei 225 Index is surging: here are the top catalysts to watch

The Nikkei 225 Index rocketed up to a record high this week after Japan reached a trade deal with the United States. It jumped to a record high of ￥41,000 as it jumped by over 3%. It has soared by over 33% from its lowest point in April this year. 

US and Japan trade deal

The Nikkei 225 Index continued its strong rally on Wednesday after market participants cheered the latest trade deal between the US and Japan. In a statement, Trump called it the “largest deal ever”, ending an impulse that has been going on in the past few months. 

Most Japanese goods brought to the US will be subject to a 15% levy, while the country pledged to invest $500 billion into the United States, a substantial amount since it has a GDP of $4.7 trillion. In a statement, Japan’s prime minister said:

Still, the deal means that many Japanese companies that export to the United States will pay higher levies than they are used to. In addition to these tariffs, the companies are also dealing with the strong Japanese yen. The USD/JPY pair has moved to 146, down sharply from last year’s high of 158.85. 

On the positive side, the deal removes the biggest uncertainty that has been there in the US-Japan trade relationship. Trump had threatened a 30% tariff by August 1.

Earnings and BoJ interest rate decision

The next important catalyst for the Nikkei 225 Index will be the upcoming corporate earnings from its constituent companies. A handful of notable companies like Chugai Pharma, Canon, Fuji Electric, and Mitsubishi Motors will report their earnings on Thursday.

Other companies like Komatsu, Nomura, Takeda, Fujitsu, Panasonic, Nissan, Hitachi, Sumitomo Mitsui, Mizuo, Japan Tobacco, Itochu, and Mitsui will release their financial results next week. Historically, the index often has high volatility when these companies publish their results. 

The earnings dump is expected to occur on the same day as the Bank of Japan's (BoJ) interest rate decision publication. Economists expect the bank to maintain interest rates intact at 0.5%. 

Nikkei 225 Index technical analysis

The daily chart has been in a strong bull run in the past few months. It moved from a low of ￥30,846 in April last year to a high of ￥41,060, its highest level since July last year.

The index jumped above the important resistance level at ￥40,300, its highest point in October and December last year. It was also the highest point in January this year. 

The Nikkei 225 Index formed a golden cross pattern as the 50-day and 200-day moving averages crossed each other on June 24. Therefore, the index will likely continue rising as bulls target the key resistance point at ￥42,418, the highest swing on July 12.