The Nikkei 225 Index bounced back above the resistance level at ¥50,000 for the first time this week as global equities soared after the recent Nvidia earnings and after the Japanese yen crash accelerated. It also jumped as investors reacted to the new stimulus deal. It has jumped by 60% from the year-to-date low of ¥30,855.
Japan stocks jump ahead of Sanai Takaichi stimulus
One of the main catalysts of the Nikkei 225 Index is a report that Sanae Takaichi, was considering launching a new stimulus package to support an economy that is showing signs of slowing down. Data released earlier this week showed that Japan’s economy shrank by about 1.8% in the third quarter.
She will deliver a budget proposal that will be about 27% higher than what her predecessor unveiled last year. It is estimated that the deal will be worth about $112 billion and will include tax reductions and funds drawn from special accounts.
Most importantly, together with the expected public sector spending, the impact of the package will be worth about ¥42.8 trillion. It is common for the stock market to jump when a country announces a huge stimulus plan.
Japanese yen crash
The other major catalyst for the ongoing Nikkei 225 Index jump is that the Japanese yen has been in a strong downward trend in the past few months.
The USD/JPY exchange rate jumped to a high of 158 today, its highest level since January 15 last year. It has jumped by over 12% from its lowest level this year.
The Japanese yen has plunged even as the US dollar index has remained under pressure after falling from the year-to-date high of $110 to the current $100. The dollar has weakened substantially against other currencies like the euro, sterling, the South African rand.
Many Japanese companies are doing well. The yen is falling because it makes their exports cheaper. Some of the top beneficiaries are companies like Hitachi, Toyota, Mazda, and Mitsubishi.
Other domestic companies, especially in the tourism industry, benefit as the weaker yen makes trips to the country more affordable.
Japan stocks are soaring because of Nvidia earnings
The third main reason why the Nikkei 225 Index has jumped sharply in the past few days is the recent Nvidia earnings.
In a report on Wednesday, the company said that its revenue surged to $57 billion in the third quarter and predicted that its revenue will jump to $67 billion in the fourth quarter.
The company’s management also noted that there was no AI bubble. As a result, many companies in the AI industry jumped.
Advantest, a company that supplies test equipment to firms in the semiconductor industry, jumped by 8.8% on Thursday, bringing its year-to-date gains to 122%. Tokyo Electron jumped by 5%, bringing the YTD gains to 50%.
The other non-tech gainers were companies like Hitachi, Sony, Mitsubishi UFJ, Softbank, and Nintendo, which jumped by over 2%.
Nikkei 225 Index technical analysis
The daily timeframe chart shows that the Nikkei 225 Index has been in a strong uptrend in the past few months, moving from a low of ¥30,855 to the current ¥50,000.
It has constantly remained above the 50-day and 100-day Exponential Moving Averages, and has recently formed a morning star candlestick, which often leads to a reversal.
Therefore, the most likely scenario is where the index rebounds and continues rising, potentially hitting the important resistance level at $52,750. A move above that resistance will point to more gains in the near term.
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