The Nikkei 225 index plunged by over 3% on Thursday as investors dumped top Japanese stocks following Donald Trump’s Liberation Day speech. It plunged to a low of ¥34,150, its lowest level since August 5, and 18% below the highest point this year. That is a sign that it may move into a bear market soon.
Japan and US trade war escalates
The Nikkei 225 and Topix indices plunged after Trump unveiled a 24% tariff on many Japanese products on top of the 25% tariff he placed on imported auto and parts.
These tariffs will have a major implication on the trade volumes from Japan to the US, two of the top allies. Trump has also hinted that he will retaliate if Japan imposes tariffs on US goods. Instead, he argued that the only way that the US would lower its tariffs on imported goods would be if other countries lowered tariffs on US goods.
The US and Japan have had an impressive trade relationship over the years. Japan exported goods worth about $140 billion to the US in 2024, while the US sold goods valued at about $70 billion. Trump has always been concerned about this large trade deficit, especially since the US is responsible for protecting Japan.
Japan banks lead the sell-off
Most companies in the Nikkei 225 index slumped on Thursday. Top exporting companies dropped as investors focused on their potential slower sales to the US. At the same time, most bank stocks plunged as analysts predicted that the Bank of Japan (BoJ) will not deliver more interest rate cuts this year.
Resona Holdings, which runs the fifth-largest banking group in Japan, crashed by over 9% on Thursday. Mizuho Financial Group, Chiba Bank, Nomura Holdings, Mitsubishi UFJ, Concordia Financial Group, and Sumitomo Mitsui Financial Group crashed by over 7%.
Analysts now believe that the BoJ will pause its rate hikes to prevent Japan from tumbling towards a recession. Banks usually do well when the central bank is hiking interest rates since this leads to a higher net interest income.
Other top Japanese exporters were among the laggards. For example, Kawasaki Heavy Industries, Subaru, Mazda, Japan Steel, Isuzu Motors, and Toyota crashed by over 5%.
Still, analysts believe that Japan will maintain its role as one of the biggest exporters to the US. That’s because the cost of doing business in Japan is lower than in the US, meaning that companies will be comfortable to maintain status quo and then boost prices.
Nikkei 225 index technical analysis
The daily chart shows that the Nikkei 225 index has been in a strong downtrend in the past few days. This crash intensified on Thursday after Trump imposed these tariffs. It moved below the key support at ¥35,250, the lowest swing in September last year.
The index has also formed a death cross as the 50-day and 200-day Exponential Moving Averages (EMA) crossed each other. It is one of the most bearish signs in technical analysis.
Also, top oscillators like the Relative Strength Index (RSI) and the MACD have all pointed downwards. Therefore, the index will likely remain under pressure in the coming days as sellers target the key support at ¥33,000. A move above the resistance point at ¥35,250 will invalidate the bearish outlook.
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