Why the Nikkei uptrend looks set to resume

Leading the recovery in Asian stock markets yesterday, the Nikkei 225 finished the day 2.08% higher at 28517, boosted by strong gains in semiconductor stocks, including Tokyo Electron and Advantest.

Japan flag

The outperformance in semiconductor stocks promoted by reports Japan will offer tax breaks to revive domestic chipmaking to reverse decades of decline in the industry.

More broadly, the Japanese economy (and the Nikkei) has benefitted from a decision to close Japanese borders to all new foreign arrivals in late November. This decision has helped Japan avoid a surge in new Omicron covid cases being experienced elsewhere in the region, including South Korea and here in Australia.

The Nikkei is an indirect beneficiary of policy easing in China and central bank policy divergence. Specifically, while some developed market central banks, including the Federal Reserve and Bank of England, have commenced tightening policy, the Bank of Japan can remain patient.

Mindful that even after decades of ultra-loose monetary policy, inflation in Japan remains stuck near 0%, a long way from the Bank of Japan’s target.

As the chart below shows, the Nikkei has spent the last three months of 2021 tracing out a correction after completing a five-wave advance from the 15,680 March 2020 Covid low at the September 30,620 high. The correction has unfolded in a triangular five wave “abcde” and appears complete at Monday's 27,745 low.

Should the Nikkei break and post a daily close above trendline resistance currently at 29,650ish, it would generate a buy signal in expectation of a retest and break of the 30,715 high before a move towards 32,000.

Nikkei Daily Chart 22nd of December

Source Tradingview. The figures stated areas of December 22nd, 2021. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

How to trade with City Index

You can trade with City Index by following these four easy steps:

  1. Open an account, or log in if you’re already a customer 

    Open an account in the UK
    Open an account in Australia
    Open an account in Singapore

  2. Search for the company you want to trade in our award-winning platform 
  3. Choose your position and size, and your stop and limit levels 
  4. Place the trade


Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.