The Nikkei 225 Index wavered this week as some of its biggest constituents published their earnings and as the Japanese yen continued its recent freefall. It was trading at ¥50,435, a few points lower than the year-to-date high of ¥52,640. It has jumped by 63% from its lowest level this year.
Japanese companies are reporting strong earnings
The Nikkei 225 Index wavered even as tens of its top constituent companies released their numbers. Most of these firms published numbers that were much better than expected.
For example, Softbank reported revenues of ¥1.92 trillion, higher than the consensus estimate of ¥1.87 trillion. Similarly, Sony, the giant entertainment company, made ¥3.11 trillion, higher than the median estimate of ¥3.02 trillion.
Other top Nikkei 225 Index companies that released their earnings reports were Bridgestone, Inpex, Rakuten, Mitsubishi UFJ, Sumitomo Mitsui, and Mizuho Financial. Together, the three banks control over 80% of the market share n the country.
Nikkei 225 and Topix Index companies have published strong numbers for three main reasons. First, the weaker Japanese yen has helped companies sell products abroad and those in the hospitality industry.
Second, companies have benefited from the recent deal between the United States and Japan that lowered tariffs to 15%. This tariff figure was much lower than what analysts were expecting. Some companies like Hitachi have announced a price increase to cover tariffs.
Additionally, many companies have benefited from the ongoing artificial intelligence wave. For example, Softbank exited its Nvidia investment this week at a big profit, with a company like Yaskawa Electric soaring by 19% after its results.
On top of announcing revenue and earnings beats, many Japanese companies have revised their forward earnings higher.
Meanwhile, the political environment is supportive of the corporate sector in Japan. Sanae Takaichi, the new prime minister, has already called for more stimulus to supercharge the economy. She also supports a lower interest rate, though it is unclear whether that will influence the Bank of Japan (BoJ).
Looking ahead, the next important catalyst for the Nikkei 225 Index and Topix will be the BoJ. Analysts anticipate that the bank will deliver another rate hike. This explains why Japan’s bond yield rose to 1.7%.
Nikkei 225 Index technical analysis
The daily timeframe chart shows that the Nikkei 225 Index has been in a strong uptrend in the past few months. It jumped from a low of ¥30,808 in April to ¥50,468 today.
The index has recently pulled back and moved to the ultimate resistance level of the Murrey Math Lines tool. It remains above the 50-day and 100-day Exponential Moving Averages (EMA), a sign that bulls are in control.
The Nikkei 225 Index is also above the Ichimoku Cloud and the Supertrend indicators. Therefore, the most likely scenario is where the index resumes the uptrend and moves to the extreme overshoot level of the Murrey Math lines at ¥53,125.
A move below the support at ¥48,437 will invalidate the bullish forecast. Such a move lower is also possible because of the investor fatigue, such as the one Bank of America warned about
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