Here’s why the Nikkei 225 Index may surge despite hawkish BoJ tilt

The Nikkei 225 Index slipped a bit after the Bank of Japan (BoJ) delivered its interest rate decision amid the ongoing US-Iran war. It dropped to ¥59,920 on Thursday, down slightly from the year-to-date high of ¥60,592.

Bank of Japan interest rate decision 

Japanese stocks retreated as market participants reflected on the latest BoJ interest rate decision, in which officials decided to leave interest rates unchanged, as most analysts were expecting. They left rates at the 30-year high of 0.75%.

The main reason why the Nikkei 225 Index dropped, and the Japanese yen jumped is that more officials voted to increase interest rates in this meeting. Three members voted to hike by 0.25%, up from the previous two.

As a result, there are concerns that the bank will ultimately decide to hike interest rates later this year as inflation continues rising.

The biggest risk for the Japanese economy is that energy prices have surged in the past few months, with Brent and the West Texas Intermediate (WTI) rising to $109 and $97, respectively. 

This rally continued this week as the contentious ceasefire between the two sides continued. At press time, Trump had not responded to Iran's offer to reopen the Strait of Hormuz.

The BoJ has been relatively hawkish in the past few years as it exited negative interest rates and hiked rates to the highest level in three decades. It also ended the yield curve control, which explains why bond yields have soared recently.

Looking ahead, the Federal Reserve will deliver its interest rate decision on Wednesday, with most analysts expecting that it will leave rates unchanged between 3.50% and 3.75%.

Top companies to publish earnings 

The other important catalyst for the Nikkei 225 Index is the upcoming earnings by some of the top companies in Japan. Hitachi, Advantest, and Astellas Pharma have already released their numbers this week..

The ones to watch today will be Mitsubishi Electric, Shin-etsu Chemical, Fujitsu, Dentso, and Komatsu. 

After this, the biggest Japanese trading houses like Mitsubishi, Mitsui, Marubeni, Sumitomo, and Itochu will release their range. These earnings are watched closely because of the large investments that Warren Buffett has made in them.

The Japanese stock market will react to the upcoming earnings by some of the biggest American companies, including popular names like Apple, Microsoft, Google, and Amazon. These numbers are important because of their size and the fact that they use Japanese supply chains in their AI businesses.

Nikkei 225 Index technical analysis 

Nikkei Index chart | Source: TradingView 

The daily chart shows that the Nikkei 225 Index has wavered in the past few days and is hovering slightly above the important support level at ¥59,297. This support is important as it is the upper side of the cup-and-handle pattern.

The index remains much higher than the 50-day and 100-day Exponential Moving Averages (EMA), while the Average Directional Index (ADX) continues its uptrend. Therefore, the most likely Nikkei Index forecast is bullish as investors target the next key resistance at ¥61,000.