Nikkei 225 Index is rising: here’s why gains could be brief

The Nikkei 225 Index jumped by over 4% on Thursday, mirroring the performance of its American peers like the S&P 500 and Nasdaq 100 indices. It jumped to ¥53,217 from last month's low of ¥50,557.

Japan stocks jump as Trump outlines Iran exit plan 

The Nikkei 225 Index jumped as investors predicted that the US would start exiting the Iran war soon. In a statement on Wednesday, Trump maintained that the war would last for a few more weeks.

The statement came on the same day that the Wall Street Journal reported the Trump was considering quitting the war even when the Strait of Hormuz was not reopened. In a Truth Social post, Trump asked countries like the UK and France to either buy jet fuel from the US or go to the Strait of Hormuz and “take it.”

The Nikkei 225 Index also jumped as the White House said that Trump would address the country on the Iranian issue later today. Traders are hopeful that he will outline plans for winding down the war.

In theory, ending the war would be bullish for Japan and the companies in the Nikkei 225 Index as it would raise the possibility that crude oil and natural gas would start flowing.

Still, there are some potential risks. First, Iran and Israel will have a say on when the war ends. Analysts believe that Iran may want to extend the war for longer in a bid to push crude oil prices higher and prevent future attacks.

Second, Iran will also want to ensure that the Strait of Hormuz remains closed for longer, a move that will solidify US loss during the war.  Such a move means that oil prices will remain at an elevated level for longer. It explains why Brent and West Texas Intermediate (WTI) have remained above $100.

Third, Trump is likely using these new developments to prepare a land attack in Iran as he has accumulated thousands of troops to the region. He has also not actualized his plan to attack Iran’s civilian infrastructure l, which he promised last week if the Strait of Hormuz was not opened.

Most Japanese stocks were in the green on Wednesday. Advantest, a top supplier in the semiconductor industry, was the top gainer as it jumped by 9.35%. 

Chiba Bank shares jumped by 8.3%, while Fukuoka Financial, Sumitomo Mitsui Financial, Furukawa, Recruit Holdings, and Yokohama Financial were the top gainers in the Nikkei 225 Index.

The other top gainers in the index were companies like Japan Steel Works, Shizuoka Financial Group, Resona Holdings, and Mizuho Financial Group.

Nikkei 225 Index technical analysis 

Nikkei Index chart | Source: TradingView 

The daily timeframe chart shows that the Nikkei 225 Index rebounded to a high of ¥53,340 on Wednesday, up modestly from the lowest point in March. This rebound happened after it formed a double-bottom pattern, a common bullish reversal sign in technical analysis.

The index has jumped above the 100-day Exponential Moving Average (EMA) and is attempting to move inside the Ichimoku cloud indicator.

Therefore, more gains may push it from the current ¥53,314 to the psychological level at ¥55,000. On the other hand, a drop below the double-bottom level at ¥50,557 will invalidate the bullish outlook and point to more downside.