What next for the soaring Nikkei 225 Index and the falling USD/JPY?

Japanese stocks and the yen surged on Wednesday as investors cheered the temporary ceasefire between the United States and Iran. The USD/JPY pair fell to 158.45, its lowest level since March 24, while the blue-chip Nikkei 225 Index jumped by over 5% to ¥56,000.

Japanese yen and stocks to benefit from US-Iran ceasefire

The Nikkei 225 and the Japanese yen jumped after the US and Iran agreed to a two-week ceasefire that will see the two sides negotiate on key issues.

The US has submitted a 15-point plan, while Iran has modified its five-point plan to ten. Therefore, the two sides will work to bridge the gap and see whether a deal can be reached.

Iran and the US have made maximalist demands to end the war. For example, Iran has called for sanctions relief, compensation, an end to the war between Israel and its regional allies like Hamas, and Hezbollah, and a commitment that the US and Iran will not attack again.

On the other hand, the US has asked Iran for its enriched uranium, commitment to end its missile and drone program, and an end to its sponsorship of Hamas and other resistance groups.

These are all major goals, and it is hard to see how the three sides will reach an agreement in the next two weeks. This means that the war may resume as Benjamin Netanyahu had opposed a ceasefire.

Still, the new ceasefire is bullish for the Nikkei 225 Index and the Japanese yen because of the impact on the energy market. Data shows that crude oil prices tumbled by over 15% on Wednesday, with the West Texas Intermediate and Brent moving below $95.

Iran has also pledged to reopen the Strait of Hormuz, a move that will let ships from the Gulf region to move to a country like Japan. However, officials are taking tolls of at least $2 million per barrel, funds that Iran plans to use for reconstruction.

Therefore, there is an elevated risk that the negotiations will not be successful, especially if Israel is involved.

Japan has been one of the most affected countries during the war as it imports most of its oil and gas from the Middle East. Similarly, companies in the semiconductor industry import a lot of helium from the region.

Some of the top gainers today were companies like Furukawa Electric, Sumitomo Electric, Mitsui Kinzoku, Advantest, and Fujikura, which all jumped by over 10%. The other top gainers were the likes of Renesas Electronics, Ebara, Mitsui Chemicals, and Tokyo Electron.

Nikkei 225 Index technical analysis 

The daily chart shows that the Nikkei 225 Index has rebounded from a low of ¥50,557 in March to the current ¥56,000. It has formed a small inverted head-and-shoulders pattern, pointing to more gains ahead.

The index also remains above the 50-day and 100-day Exponential Moving Averages (EMA), a sign that bulls are in control. As such, the Nikkei 225 Index will likely continue rising as bulls target the all-time high of ¥59,330.

Nikkei Index chart  |Source: TradingView 

USD/JPY technical analysis 

The daily chart shows that the USD to JPY pair has plunged sharply, moving from a high of 160.81 to the current 158. It has moved below the important support level at 159.01, its highest point in January this year.

USDJPY chart | Source: TradingView

On the positive side, the pair remains above the 50-day and 100-day Exponential Moving Averages. It has also formed a large inverted head-and-shoulders pattern, pointing to more Japanese yen weakness. If this happens, the pair may rally to the year-to-date high of 160.