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This is a follow up article to: Nikkei Edges Up on Tech Gains while Market Eyes Japan’s Leadership Race
Japanese stock market index Nikkei (Symbol: Nikkei225) bounced back, rising by more than 1% in early Tuesday trading after a steep decline in the previous session.
The softer yen provided a tailwind for export-oriented companies, particularly automakers and chip-related firms, reversing some of the losses from a 5% drop.
Picture: The Nikkei index rises after a steep sell-off, as observed on the VT Markets app.
Nikkei gained 0.73% to reach 38,444.15, while the broader Topix index increased by 0.88% to 2,669.14.
After reaching an intraday high of 38,779.15, the index faced some resistance, pulling back towards its close, though it remained above the support level of 38,132.15.
The MACD is showing a flattening of momentum, with the MACD line and signal line starting to converge, indicating a possible pause in the current upward movement. The 5, 10, and 30-period moving averages suggest consolidation, with the price hovering close to the 10-period moving average.
Market participants are closely monitoring U.S. economic developments, which have been driving global market sentiment. If the Nikkei manages to break above the resistance at 38,779.15, further gains could follow, while a break below 38,132.15 might signal a retracement towards the lower support levels around 37,266.15.
On Monday, market sentiment had been impacted by a sharp yen appreciation following the news that perceived monetary policy hawk Shigeru Ishiba had won Japan’s leadership contest, raising concerns about a potential shift toward tighter fiscal policies.
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However, a softening yen supported exporters like Toyota Motor and Honda Motor, which climbed by 1.67% and 2.45%, respectively. A weaker yen tends to boost Japanese exporters by making their products cheaper overseas and increasing the value of foreign profits once repatriated to Japan.
Additionally, Federal Reserve Chair Jerome Powell’s hawkish tone on the U.S. economy contributed to a stronger dollar, easing pressure on the yen. This shift helped to stabilise the market after the steep sell-off, while firms like Fast Retailing and Tokyo Electron also contributed to the rebound of Nikkei with gains of 1.71% and 1.76% respectively.
Further depreciation of the Japanese yen could provide continued support for export-heavy sectors. However, any signs of strength or further hawkish signals from Japan’s new leadership may cause renewed volatility.
For now, the weaker yen offers a favourable environment for Japanese exporters, and the Nikkei may continue to see gains if global conditions remain stable.
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