After Japan’s inflation cooled and the Bank of Japan kept interest rates at their current level, Nikkei continued to surge. It reached its highest point ever after Japan’s index climbed. The Nikkei 225 Index jumped sharply to a new record of Y=45652, up from the low for this year of Y=30745.
The article highlights the main reasons for the recent rise in the Index.
Nikkei index jumped after the BoJ refused to hike prices
The BoJ’s refusal to raise interest rates in spite of a persistently high inflation rate is one reason why Nikkei has surged.
This is different than what happened in the year 2024, when the bank ended its negative interest rate policy and raised rates for the first times in many decades.
As inflation is moving towards a more positive direction, the bank may maintain the rates for some time.
The statistics agency released a report that showed the Consumer Price Index (CPI), which measures the overall price of goods and services, had slowed from 3,1% in July down to 2,7% in August. Core CPI fell as well to 2.7. Inflation excluding energy and food also decreased to 3.3%.
The Bank of Japan released a Friday statement in which it maintained that its interest rate was unchanged, at 0.5%. It also reiterated the data-dependence of their policy. In a statement, the Bank of Japan said that:
The growth of the Japanese economy is expected to be modest, due to trade policies and other policy factors in both countries that lead to a slower pace in economies overseas and a decrease in corporate profits.
Some analysts predict a rate increase this year, or by 2024. However, if the inflation rates continue to fall then there is a chance that BoJ may not do so.
Another notable result of the meeting was that the officials decided to gradually sell their exchange-traded fund and Japan Real Estate Investment Trusts to avoid destabilizing market.
Warren Buffett Japan investments
Warren Buffett is one of the world’s best investors and he has expressed his confidence in the Nikkei Index.
Buffett began to accumulate shares of the largest Japanese trading companies like Mitsubishi, Mitsui Marubeni Itochu and Sumitomo. Buffett now owns shares in these Japanese trading houses worth at least 3 billion dollars, the majority of which are in Mitsubishi.
Buffett, during a trip to Japan in the past year noted his strong support for Japan. He also mentioned that Japan had many undervalued businesses. This action encouraged investors to flood to Japan.
Trade agreement between Japan and the US
Nikkei has risen after the United States reached an agreement with Japan. The deal charges a 15% duty on Japanese products, and Japan agrees to purchase agricultural goods worth $8 billion per year.
The Japanese government has agreed to invest $550 Billion in areas that the US administration is interested in, such as semiconductors, shipbuilding and manufacturing. Donald Trump said that the United States will reap the majority of these profits.
Although a 15% tax is bad for Japan, it brought investors certainty and boosted the stock market. It also explains the rise of other top indices, such as South Korea’s KOSPI and Australia’s ASX 200 ,, or even Germany’s DAX.
Nikkei Index has strong technicals
Nikkei index has also increased due to its technical strength, which indicates a strong momentum.
The Relative Strength Index and MACD continue to rise.
The most likely scenario would be that the index will continue to rise as bulls aim for the next major resistance level at Y=46,000
Alternative scenario: The index will pull back to retest the crucial support level of Y=43855, the largest swing this August.
The post Nikkei Index: Top Reasons for Record High may change as new information becomes available
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