Nikkei 225 Index steady as rising Japan bond yields fuel BoJ rate hike talk

The Nikkei 225 Index was flat on Monday as the Japanese statistics agency published mixed economic numbers, which raised the odds of Sanae Takaichi’s stimulus passing in parliament. It was trading at ¥50,385 on Monday, slightly above the November low of ¥48,206.

Japan reports mixed economic data 

The Nikkei 225 Index has remained in a narrow range after a series of economic numbers from Japan. 

A report by the statistics agency showed that the economy expanded by 3.4% in the third quarter, higher than the sector median of 3.3%. On the other hand, the annualized growth rate shrank by 0.6% on a QoQ basis and by 2.3% on an annual basis.

This slowdown was mostly because of the falling capital expenditure and external demand, which dropped by 0.2% in the last quarter. This decline was offset by a small increase in private consumption.

These numbers will help to justify Takaichi’s stimulus package, which she announced last week, featuring the biggest domestic spending since the pandemic started in 2020. Officials expect that the spending will help to boost the economy by 1.4% per year in the next three years.

Still, analysts believe that the Bank of Japan (BoJ) will hike interest rates in its December 19 meeting, with officials arguing that the softness in key sectors like construction and exports will be temporary. 

A BoJ rate hike will be important as it will fuel a divergence between the US and Japan, with economists expecting the Federal Reserve to cut interest rates by 0.25% in this meeting. This explains why the Japanese yen has rebounded against the US dollar, moving from 157.8 on November 20th to 155 today.

The rising hopes for a BoJ hike explains why Japan bond yields have soared this month, with the ten-year rising to 1.95% and the five-year moved to 1.437%, up from the year-to-date low of 0.683%.

Meanwhile, the Nikkei 225 Index steadied as tensions between China and Japan continued, with Chinese jets pointing their radar at Japanese aircraft, leading to Japan’s prime minister vowing a response.

Top Japan stocks laggards and leaders

Most companies in the Nikkei 225 Index were in the red on Monday, with Softbank being the top laggard. The Softbank stock price has crashed by over 30% from the year-to-date high as concerns about its exposure to OpenAI jumped. 

The company has committed to investing up to $40 billion, a risky move for a company that is yet to be profitable and one that is facing substantial competition from companies like Google, xAI, and Anthropic.

The other top laggards in the Nikkei 225 Index were companies like Nippon Sheet Glass, Lasertec, Tokyo Electric Power, Komatsu, Hitachi, and Seven & I.

On the other hand, companies like Fujikura, Mitsubishi Estate, Japan Steel Works, Sumitomo Electric, and Tokyo Fudosan were the top gainers.

Nikkei 225 Index technical analysis 

The daily timeframe chart shows that the Nikkei 225 Index has rebounded from the year-to-date low of ¥30,825 in April to the current ¥50,523, mirroring the performance of the global stock market.

Most recently, the index has rebounded from a low of ¥48,206 on November 19 as it approached the year-to-date high of ¥52,627.

The index remains above the 50-day and 100-day Exponential Moving Averages (EMA) and the Supertrend. Also, top oscillators like the Relative Strength Index and the MACD have continued rising in the past few weeks.

Therefore, the most likely scenario is where the index continues rising as odds of a stimulus package in Japan rose. If this happens, the next key resistance level to watch will be at ¥52,627. A drop below the key support level at ¥48,205 will invalidate the bullish outlook.