The Nikkei 225 Index dropped by 1.30% on Monday as traders waited for the upcoming Bank of Japan (BoJ) interest rate decision. It also dropped as Japan tech companies dropped amid AI jitters and as bond yields rose. It was trading at ¥50,207, down from the year-to-date high of ¥52,635.
Nikkei 225 Index slips as odds of BoJ rate hike jump
The Nikkei 225 Index, which tracks the biggest Japanese companies, retreated by 1.30% as traders anticipated the upcoming BoJ interest rate decision, which will happen on Friday.
Economists polled by Reuters expect the bank to hike interest rates by 0.25% for the first time in eleven months. Odds that the BoJ will hike interest rates have jumped to 97% on Polymarket.
These rising odds explain why the Japanese yen has rebounded in the past few days. The USD/JPY exchange rate has moved to 155.13, down from the year-to-date high of 157.76.
Similarly, the ten-year yield rose to 1.96%, a few points below the year-to-date high of 1.981%, and much higher than the year-to-date low of 1.058%. Japan’s five-year yield rose to 1.433%, up from the YTD low of 0.683%.
The bank has hinted that it will hike interest rates by 0.5% as inflation has remained at an elevated level. Its most recent report showed that Tokyo’s core CPI rose to 3.1%. Japan’s headline inflation remained at 3%.
Japan’s inflation will likely remain at an elevated level now that the current prime minister has requested billions of dollars in stimulus package.
The BoJ will also hike rates to combat the deteriorating Japanese yen, which has dropped to 155 from 139.90.
Softbank stock price has crashed amid AI jitters
The Nikkei 225 Index has also slumped because of the ongoing Softbank stock price crash. Softbank, one of the biggest constituent companies, has dropped by nearly 40% from its highest point this year.
It has crashed because it is one of the biggest players in the AI industry. For example, it is a member of the Stargate project, which is building large data centers in the United States.
The company has also committed to investing billions of dollars in OpenAI, a firm that has fueled the ongoing AI boom. Therefore, the ongoing Softbank stock price crash mirrors the performance of other firms in the industry like Oracle, Broadcom, and Nvidia.
The other top laggards in the Nikkei 225 Index were companies like Japan Steel Works, Advantest, Mitsui Mining & Smelting, Sumitomo Metal Mining, Fujikura, and Nippon Steel.
On the other hand, the top gainers were companies like AEON, East Japan Railway, Mercari, Recruit, Toho, and Toyota Tsusho, which jumped by over 3%.
Nikkei 225 technical analysis
The three-day chart shows that the Nikkei 225 Index formed a double-bottom pattern at ¥31,145 and a neckline at ¥422,385, its highest point in July 2024. It has remained above that level since August this year.
The index has remained above all moving averages, a sign that bulls are in control. Recently, however, the stock has pulled back. A closer look shows that it has formed a small bullish pennant pattern, a common continuation sign.
Therefore, the index will likely have a bullish breakout, with the next point to watch being the year-to-date high of ¥52,590. A move above that level will point to more gains, potentially to the resistance at ¥53,000.
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