Nikkei 225 index forecast as Japan bank stocks nosedive

The Nikkei 225 index (NI225) plunged to the lowest level since February 24th as concerns about the financial market continued. It crashed to a low of ¥27,075, which was ~5.50% below the highest level this month. Other Asian indices like the KOSPI, Nifty 50, and Hang Seng also fell

Japan bank stocks fall

Most Nikkei 225 constituent companies were deeply in the red on Tuesday morning. However, a closer look shows that banks and other financial services companies were the worst affected. 

T&D Holdings, a large insurance company, was the worst-performing stock in the Nikkei index as it slipped by over 8.40%. Resona Holdings, which owns the fifth biggest bank in Japan, slipped by more than 8%.

Other Japan bank stocks were in the red as concerns about bank runs accelerated. Mitsubishi UFJ, Sumitomo Mitsui Financial, Mizuho Financial, and Concordia Financial were among the worst-performing stocks in the Nikkei 225 index. Other companies like Fukuoka Financial, Chiba Bank, and Aozora also retreated. 

The main concern is that the banking sector in the developed world is on edge following the collapse of Silicon Valley Bank and Signature Bank in the United States. The two firms were always seen as safe companies. Therefore, investors are afraid that other banks could see a bank run in the coming days. 

American regulators reacted swiftly to prevent contagion in the banking sector. They announced a large backstop that ensured that all depositors were able to withdraw their funds from Silicon Valley Bank and Signature Bank. It was the biggest bank rescue since the Global Financial Crisis. Despite these measures, regional bank stocks like Western Alliance and PacWest dropped sharply on Monday. 

There were several Nikkei 225 constituents in the green on Tuesday. Eisai, East Japan Railway, Terumo, and Central Japan Railway companies rose by more than 2%. 

However, there is a silver lining in the collapse of Silicon Valley Bank. Analysts now believe that central banks like the Federal Reserve will take a measured tone when making their next interest rate decisions. Most economists expect the Fed will either hike by just 0.25% or not hike at all next week. 

Nikkei 225 index 

NI225 chart by TradingView

I warned about the Nikkei index in this article last week. In it, I wrote that the index would likely pull back in the coming days after the GDP miss. This view was accurate. 

On the four-hour chart, we see that the Nikkei index pulled back sharply on Tuesday. As it dropped, it managed to move below the key support level at ¥27,826, the highest level on February 3. 

The Nikkei index also fell below the 25-period and 50-period moving averages while the Relative Strength Index (RSI) is nearing the oversold level. Therefore, the index will likely resume the upward trend as the sell-off wanes. We have seen American futures like the Dow Jones and Nasdaq 100 rebound as well.