The main story of 2022 in the FX market was the sharp decline of the Japanese yen (JPY). The move was so aggressive that it forced the Bank of Japan to intervene in the currency market for the first time in decades.
Yet, the stock market lagged. Nikkei 225, the stock market index for the Tokyo Stock Exchange, is in a 2-year long consolidation.
30,000 proves to be a tough level to break. Bulls were denied twice, as sellers emerged at every attempt.
Frustration must have reached record levels because, while the Japanese stock market consolidated, the US stock market rallied to new all-time highs. Therefore, is it time for a bullish breakout?
For any bullish breakout, there must be a reason to trigger the move. Can it be the recent announcement that the Japanese FY2023 budget will beat a new record?
Japanese parliament votes on a record budget for the fiscal year 2023
Subdued levels of inflation gripped the Japanese economy for years. As such, the Bank of Japan kept a very loose monetary policy.
But inflation is creeping up slowly. According to recent data, the average Japanese household will spend more on food by about $460 in 2023 than it did in 2022.
An inflationary economy needs a boosted budget. On Tuesday, the parliament voted on a record 114.38 trillion yen budget, or about $870 billion. Security threats and inflation are the main challenges for the year, even if the Bank of Japan expects that inflation will decelerate this year.
A move above 29,000 points should trigger more upside
Buying the Nikkei 225 index may be risky while inside the consolidation area. Conservative traders may want to wait for the index to close above 29,000 points before going long and targeting a new high above 32,000. A drop below 26,000 points would invalidate any bullish case.
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