End of Japanese Financial year TOPIX updated

In mid-February, after the release of a very weak Japanese Q4 GDP data print, we wrote that in days gone by, it would have triggered a sharp response in Japanese asset markets.

However apart from modest falls in Japanese stock indices, USD/JPY and JGB’s remained eerily becalmed as expectations increased the Japanese government would unleash another round of fiscal stimulus aimed at avoiding two consecutive quarters of negative growth, and the Japanese economy entering recession.

In the same article here we wrote that should the Topix break/close below key support at 1620, it would warn that a 25% fall was underway, towards 1225ish to complete a Wave C of an “abc” correction.

“Providing the Topix remains below the recent triple high 1750, the risks are for a move towards the wave equality target at 1225ish to complete Wave c of its correction. I would suggest using a break/close below support at 1620 to suggest the aforementioned big picture move is underway.”

As the Japanese fiscal year comes to a close today, history will show that it was the spread of Covid-19 that prompted the dramatic fall in the Topix we warned of, the postponement of the Olympics and guaranteed the frail Japanese economy will once again enter recession, just 5 years after its last recession.

To combat a deeper prolonged recession, the Japanese government announced yesterday an additional U.S $149 billion boost to government bond issuance to fund stimulus measures. Stimulus combined with end of financial year buying has enabled the Topix to be amongst the first major global equity market to recover approximately 50% of March’s losses.  

Returning to the monthly chart referred to in February, the Global Financial Crisis low of 687 to the 1915.5 high of 2018 unfolded in a textbook Elliott Wave five waves. After reaching our correction target of 1225 in March and combined with the strong recovery in past weeks, the Topix chart offers further encouragement to the view that markets have turned the corner.

Taking it a step further, should the Topix rally continue to extend and permit a break and close above resistance 1575ish, it would provide initial confirmation the uptrend has returned and that a retest of the 2018 is underway.