NIKKEI 225 Index Rebounds From Weekly Low And Settles Above 28300.00s, BOJ Appoints New Governor

• NIkkei 225 Index witnessed some dip buying during early asian session and rebounded from a one-week low
• Reports of BOJ maintaining its ultra-loose policy for the time being offers some support despite appointment of new Governor
• Expectations of aggressive interest rate hikes by the Fed fueled this week by Powell’s testimony keep reds near
• Best performing sectors were Industrials, Consumer Discretionary, and Information Technology sectors, in turn offers support to the Nikkei 225

Nikkei 225 index edged slightly higher on Friday during the early Asian session, retreating above 28300.00s after dropping down to a one-week low in the previous session amid Wall Street sell-off and News of approval of Kueda as the Next of Japan Governor.

As per press time, the NIkkei 225 index is up 61.45 points 0.22% to trade at 28334.68 amid a modest Japanese Yen rebound. But still, the Japanese Yen Basket (JPY Basket), which measures the value of the Japanese Yen relative to a basket of foreign currencies, is on course to finish the week with solid gains having so far risen by 1.75%/137 points to trade at ¥8003. Reports that the BOJ is still expected to maintain rates at ultra-low levels, as well as continue its open market asset purchases, traders flocked to Japanese stocks on the prospect of safer returns. In turn, this was seen as a factor that offered an intraday boost to the Nikkei 225 index.

This came after Japan approved the appointment of Kazuo Ueda as the next governor of the Bank of Japan. The parliament also approved Shinichi Uchida and Ryozo Himino as the next Bank of Japan deputy governors, Japanese News Paper Kyodo reported on Thursday. Markets see Ueda as the person who will take an aggressive approach towards tightening monetary policies in Japan, unlike his predecessor who stuck to ultra-lose-policy settings and Dovish stand while other major central banks around the world took aggressive approaches by raising interest rates in order to tackle inflation. Analysts expected the aggressive approach to be adopted later, rather than soon.

That said, the current uptick runs the risk of fizzling out sooner or later amid heavy headwinds stemming from the current sell-off in Wall Street led by declining bank shares as investors look to upcoming job data later today for clues into how the Federal Reserve may move forward.

US financial stocks led the sell-off in Thursday’s session, dragged by SVB Financial’s 60% plunge after it announced a plan to raise more than $2 billion in capital in a bid to offset losses from bond sales, cnbc.com reported. The sell-off came a day after Fed Chair, walked back some of the previous day's 50bps signal on the second day of his Congressional Testimony before the Joint Economic Committee in Washington DC. However, Powell went on to say that “If - and I stress that no decision has been made on this (referring to indecision if he would raise interest rates by 50bps in March's meeting) - if the totality of the data were to indicate that faster tightening is warranted (referring to today’s NFP report and next week’s CPI/PPI report), we would be prepared to increase the pace of rate hikes." In turn, this cemented market expectations that interest rates will remain high as the Fed battles inflation in the US and in turn, this should cap the Nikkei 225 Index against further uptick.

Further limiting the Nikkei 225 Index on thursday was the downbeat Japan GDP QOQ data which showed Japan’s Q4 GDP was revised lower to show no growth. The Japanese economy stagnated quarter-on-quarter in the three months to December 2022, compared with a flash figure of 0.2% growth and after a 0.3% contraction in the previous period, the japanese Cabinet office reported on thursday. The latest figure highlighted the fragility of a recovery in the economy, as private consumption grew less than initially anticipated amid rising cost pressures (0.3% vs 0.5% in the first estimate and after a flat reading in Q3).

That said, despite the negative factors the Nikkei 225 Index was supported by solid gains in the Industrials, Consumer Discretionary, and Information Technology sectors while dragged down by losses in the Financial and Consumer Staples sectors. That said, Toppan Inc. (Tokyo: 7911) led the list of top gainers after it gained 6.99%/183.0 points to trade at ¥2300.0 per share. Sekisui House Ltd (Tokyo: 1928) followed second after it jumped 0.86%/23.5 points to trade at ¥2751.0 per share. The Canon Inc. (Tokyo: 7751) came in third after it added 0.66%/19.5 points to trade at ¥2963.0 per share.

On the other hand, Chiba Bank (Tokyo:8331), Ltd led the list of top losers after it shed 5.79%/60.0 points to trade at ¥977.0 per share. Seven & i Holdings (Tokyo: 3382) followed second after it lost 5.84%/385 points to trade at ¥6204.0 per share.

Technical Outlook: Four-Hours Nikkei 225 Price Chart

From a technical standstill using a four-hour price chart, the price has extended the modest rebound from the vicinity of 28202.2 level which sits above a key Demand zone ranging from 28159.72 - 28195.85 levels. Some follow-through buying would face resistance at the key resistance level plotted by an ascending trendline extending from the late February 2023 swing high. If the price pierces above this barrier (bullish price breakout), the bullish trajectory could be extended further towards the key Supply zone ranging from 28614.20 - 28809.86 levels.

All the technical Oscillators in the chart are holding in bullish territory, with both the RSI (14) and the MACD crossover above their signals, pointing to a bullish sign for price action today. The bullish bias is supported by the acceptance of price above the 200 Exponential Moving Average (EMA) at 27376.27 level.

On the flipside, any meaningful pullback now seems to find some support at the 28159.72 - 28195.85 level. This is followed by the 28000.00 round-figure mark (October 2018 and 2021 swing highs), which if broken decisively will negate the positive outlook and prompt aggressive technical selling. The downward trajectory could then accelerate toward retesting the key support level plotted by an ascending trendline extending from the late February 2023 swing low.