Price Analysis
Dec 9, 2022
5 mins read

NIKKEI 225 Index Rises Amid Hopes Of China's Economy Picking Up As Covid-19 Curbs Eases

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  • The Nikkei 225 index rose 184.91 points/0.67% on Friday to trade at 27926.85 amid renewed Japanese Yen buying.
  • Despite a slew of downbeat Japanese economic news data, hopes of China's Economy Picking Up as Covid-19 Curbs ease contributed to the positive sentiment around the NIkkei 225 index
  • China's inflation data comes roughly in line with market expectations which in turn underpin the Nikkei 225 index

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Nikkei 225 index prolonged its recent strong move-up witnessed since Thursday and gained positive traction for the second day on Friday amid hopes that China's economy would pace as COVID-19 curbs ease.

As per press time, the NIkkei 225 index is up 184.91 points/0.67% to trade at 27926.85 amid renewed Japanese Yen Buying. The Japanese Yen Basket (JPY Basket), which measures the value of the Japanese Yen relative to a basket of foreign currencies, was up 52 points/0.67% at 7828 on Friday(05:57 UTC+3) after falling more than 175points/2.20% in the last four days after data on Thursday showed the country logged an unexpected current account deficit in the third quarter.


Additionally, the Japanese economy shrank 0.2% quarter-on-quarter in the three months to September 2022, compared with flash data of a 0.3% fall after a 1.1% growth in the previous period. 

Furthermore, comments from Bank of Japan Board Member Toyoaki Nakamura last week were also seen as contributing to the poor Yen performance. It is premature for the Bank of Japan to tweak its ultra-loose monetary policy, board member Toyoaki Nakamura said on Wednesday, stressing the need to maintain its massive stimulus to underpin a fragile economy.

While prolonged ultra-low interest rates were weighing on profits for financial institutions, the benefits of the stimulus still exceeded its costs, Nakamura said.

His comments echoed those of Haruhiko Kuroda, the central bank governor, who has repeatedly brushed aside the need to raise interest rates any time soon.

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That said, hopes of China's economy picking up as COVID-19 curbs ease contributed to the positive sentiment around the NIkkei 225 Index. China's Premier Li Keqiang, in comments carried by state media, said on Thursday that China's shift in COVID policy would allow the country's economy to pick up the pace, a day after a top-level party meeting pledged to focus on stabilizing growth while optimizing the pandemic measures.

Further lifting the NIkkei 225 index was the news of China inflation data coming roughly in line with expectations. China's annual inflation dropped to 1.6% YoY in November 2022 from 2.1% in the prior month, matching market consensus. This was the lowest figure since March. Every month, consumer prices declined by 0.2% in November, the first drop in August, in line with estimates, and after a 0.1% gain in October. Additionally, China's producer prices dropped 1.3% YoY in November 2022, the same pace as in the previous month, compared with forecasts of a 1.4% fall. This was the second straight month of factory gate prices decline amid weakening domestic demand due to strict COVID curbs and falling commodity prices.

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In the Nikkei 225 Index, the best performers of the current session were Furukawa Electric Co. Ltd (Tokyo:5801), which rose 5.43%/ 136 points to trade at ¥2620.00 per share. Meanwhile, Tokyo Electric Power Co Inc (Tokyo:9501) gained 5.32%/26 points to trade at ¥515.00 per share. Konami Group Corp (Tokyo: 9766) closed the list after it added 3.59%/220 points to trade at ¥6340.00 per share.

On the hand, the top losers of the current session were Sekisui House Ltd (Tokyo:1928) which fell 2.40%/60 points to trade ¥2435.5 per share. Inpex Corp (Tokyo:1605) shed 0.97%/14 points to trade ¥1431.0 per share. Fukuoka Financial Group Inc (Tokyo:8354) closed the list after it declined by 0.45%/12 points to trade at ¥2645.0 per share.

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Technical Outlook: One-Day Nikkei 225 Index Price Chart

NIKKEI 225 Index Rises Amid Hopes Of China chart

From a technical standstill, using a one-day price chart, the price extended the modest rebound from the vicinity of the 27423.18 level. Spot prices now face an immediate hurdle plotted by the 61.8% and 50 % Fibonacci retracement levels at 28084.85 and 27960.44 levels, respectively. If the price manages to pierce these barriers, buying interest could gain momentum, creating the right conditions for an advance towards the key supply zone ranging from 28614.20 - 28809.86 levels (the former level coincides with the lower ascending trendline channel plotted from October 2022 swing low). A clean break above the aforementioned barricade would be seen as a new trigger by bulls to continue pushing up the price. The upward trajectory could then accelerate toward the 29255.69 Ceiling.

All the technical oscillators on the chart are in positive territory, with the RSI (14) at 52.44 above the signal line, portraying a bullish filter, and it will be prudent to wait for a further upside move above the 50% and 61.8% Fibonacci retracement levels before placing any further bullish bets. On the other hand, the Moving Average Convergence Divergence (MACD) Crossover is above the signal line, pointing to a bullish sign for price action this week.

On the Flipside, if dip-sellers and tactical traders jump in and trigger a bearish reversal, the price will first find support at the 27788.49 support level en route to the 27423.18 key support level. If Bears managed to breach these floors, it would negate any recent bullish outlook and pave the way for aggressive technical selling around the Nikkei225 Index.