Chart of the day - JP225 (14.03.2024)

A lot of markets' attention is on Japan recently, as there are more and more signs suggesting that Bank of Japan will exit negative interest rates soon. Trade unions inform about the largest pay hikes in this year's wage talks in a decade. This is important as higher wages fuel inflation, and Japan has been struggling with below-target inflation for years. While inflation spiked above target following the pandemic, there were concerns whether this above-target price growth will be sustained. Results of wage talks greatly boost such a possibility, and BoJ is expected to hike rates soon. Markets began pricing-in a rate hike as soon as at next week's meeting, with stronger JPY putting pressure on domestic equities. Normalizing policy would also hint at scrapping ETF purchases. However, as Bank of Japan currently owns around 7% of the local stock market, it is highly unlikely that it will begin selling those holdings soon or quick, as it would have a massive negative impact on domestic equities.

Rally on JPY took a pause today with the currency dropping 0.1-0.2% against USD. This is allows Japanese indices to catch a breath. There is a strong inverse correlation between Japanese yen and Japanese stock market, as a number of largest Japanese stock derive most of their profits from exports. This means that stronger JPY translates into lower earnings. Taking a look at Nikkei 225 futures (JP225) at H1 interval, we can see that the index halted recently pullback in the 38,150-38,250 pts support zone. However, bulls have struggled to launch a longer-lasting recovery. The first attempt to launch a recovery move was halted at the upper limit of the local market geometry in the 38,900 pts area. However, it looks like bulls may be gearing for another test with the index climbing above 38,575 pts swing area today.

Source: xStation5