Nikkei 225 strong rally seems to fizzle as Japan GDP disappoints

The Nikkei 225 index (NI225) has taken a commanding lead against other global indices even as monetary policy concerns remained. It jumped to a high of ¥28,718, the highest level since August. A quick look shows that it has risen by over 11% from the lowest level this year.

Japan GDP growth disappoints

The Nikkei index continued its bull run as investors reacted to the latest Japan GDP numbers. According to the statistics agency, the economy saw no growth in Q4 of this year. Economists were expecting the economy to have risen by 0.2%. The economy expanded by 0.1% on a year-on-year basis, which was also lower than the median estimate of 0.8%.

Japan’s economy was dragged by capital expenditures, which plunged by about 0.5% in the quarter. Private consumption, which is an important part of the economy, rose by 0.3% while external demand increased by 0.4%. 

These numbers mean that the Bank of Japan will likely continue its existing monetary policy when it meets next week. In his last meeting, analysts believe that Haruhiko Kuroda will decide to leave interest rates unchanged. He will likely tweak his policy on yield curve, which is costing the country billions.

Meanwhile, the Nikkei index has done well because of the ongoing China reopening and thawing relationship with South Korea. Many Japanese companies do a lot of business in neighboring China. After growing by just 3% in 2022, China expects to grow by 5% this year. Japan will benefit from this resurgence.

Many Japan companies have done well this year. Kobe Steel, a leading company, has risen by more than 73% year-to-date. Other top Nikkei 225 constituents are Citizen Holdings, Dai Nippon Printing, NTN Corp, and Advantest have all jumped by over 355 this year. Notable automakers like Mazda, Nissan, and Mitsubishi have all rallied. 

Nikkei 225 forecast

NI225 chart by TradingView

The 4H chart shows that the Nikkei index has been in a strong bullish trend in the past few weeks. This is in line with my previous forecast, which you can read here. It managed to cross the key resistance level at ¥28,518, the highest point on November 24. Based on the Murrey Math Lines, the index moved to the overshoot level of ¥28,515. 

It remains above the 50-period exponential moving average while the Relative Strength Index (RSI) has become extremely overbought. Therefore, the index will likely pull back in the coming days as investors target the important support point at ¥27,826, the highest point on February 13.