JP 225 analysis: the index is rising

The Nikkei Index was up 1.78% on Tuesday, with tech stock gains countering the effects of a stronger Yen on export-listed stocks. On Monday, the USD/JPY declined by 0.66% to close at 146.569.

Tokyo Electron Ltd. (8035) and Softbank Group Corp. (9984) saw gains of 1.60% and 2.32%, respectively, while Fast Retailing Co. Ltd (9983) rallied 2.89%.

Key Points:

• Analysts forecast a fall in inflation in Japan, which may impact the BoJ’s decisions
• Released data on machinery orders and Q2 GDP growth indicate the strengthening of the Japanese economy
• Resistance: 38,150.0, Support: 37,690.0
• JP 225 price forecast: 39,020.0 and 39,550.0

Nikkei 225 up 1.98%

Japanese stocks ended higher on Tuesday, buoyed by gains in the Paper & Pulp, Chemical, Petroleum & Plastic, and Shipbuilding sectors. At the close in Tokyo, the Nikkei 225 climbed 1.98%.
Leading the session’s gains on the Nikkei 225 were Mercari Inc (TYO:4385), which surged 8.68% or 174.50 points to finish at 2,185.00. M3 Inc (TYO:2413) rose 8.07% or 104.00 points to close at 1,392.50, while Sharp Corp (TYO:6753) gained 7.07% or 63.50 points to end at 961.20. The session's laggards included Seven & i Holdings Co., Ltd. (TYO:3382), which dropped 10.55% or 228.00 points to close at 1,933.00. Ajinomoto Co., Inc. (TYO:2802) fell 1.81% or 100.00 points to end at 5,410.00, and Hitachi Ltd (TYO:6501) decreased 1.13% or 40.00 points to finish at 3,510.00.

JP 225 Fundamental analysis

Despite the JP 225 index reaching 38,141 points, it was unable to maintain its position above the key resistance level. Investors are now focused on Federal Reserve Chair Jerome Powell's upcoming speech at the Jackson Hole Symposium later this week, hoping to gain insights into potential interest rate cuts. Additionally, traders are monitoring currency movements closely, particularly concerned that a stronger yen might reduce the attractiveness of popular carry trades.

Recent data on Japan's machinery orders, which reflect capital expenditures, showed a 2.1% increase in June, surpassing the expected 1.1%. The Japanese economy also experienced a 3.1% year-over-year growth in Q2, rebounding from a 2.3% decline in Q1 and exceeding the 2.1% forecast. These positive economic indicators suggest a favorable outlook for the JP 225 index in the coming week.

Analysts were divided on the potential for near-term volatility, with six out of thirteen forecasting a further correction of 10% or more for the Nikkei by the end of September, while the remaining seven believed such a decline was unlikely.

"The stock price has already fallen, and appears to be undervalued," said Hiroshi Namioka, a strategist and fund manager at T&D Asset Management, who does not foresee another near-term pullback.
"Institutional investors with short evaluation periods, such as one year, may be reluctant to buy, but for individual investors with long-term investments, this large drop seems to have been an extremely attractive buying opportunity."

​Having recouped all its losses from the open on 5 August, the index has now recovered the losses from Friday 2 August. This remarkable bounce shows no sign of stopping at present.

​Further gains will target the 200-day SMA at 38,144, once it has closed above the 36,707 level, the low from mid-April.