The Nikkei 225 Index jumped to a record high of ¥48,880 on Monday, continuing a strong bull run that started in 2022 when it collapsed to ¥24,660. Most recently, the index jumped in the last eight consecutive weeks, its longest streak in months.
Nikkei 225 Index boosted by politics
The Nikkei 225 and Topix indices have been in a strong bull run this year because of the ongoing political developments in Japan.
It jumped after the ruling Liberal Democratic Party reached a coalition deal with the Japan Innovation Party, popularly known as Ishin. The two parties will now hold about 231 seats in the lower house.
Ishin has made a few requests, including a temporary sales tax on food, stricter rules on political funding, and a cut in parliamentary lawmakers. Additionally, the party has sought for welfare system reforms.
Therefore, the Nikkei 225 Index is rising because of the political certainty that this deal brings. It is also rising because it ensures that Sanae Takaichi will now become Japan’s prime minister.
Takaichi believes in Abenomics, a policy that Shinzo Abe supported. These policies include aggressive monetary policy, including interest rate cuts and quantitative easing, government spending, and deregulation.
All these policies are friendly to the Japanese stocks and bearish for the Japanese yen. Data shows that the Japanese yen has pulled back from the month-to-date high of 153.13.
Still, it is unclear whether Takaichi will be able to achieve her goals of monetary policy. That’s because the bank has already hinted that it will maintain a hawkish tone in the next meetings.
Japan earnings season nearing
The Nikkei 225 Index is also doing well as investors anticipate the upcoming Japan earnings season. Some top companies will start publishing their results this week, with most of them delivering their numbers from next week.
Chugai Pharmaceuticals, a company with a market capitalization of over $75 billion, will be the top company to watch this week. This is a major biotech company with expertise in oncology, immunology, and rare diseases. It will publish its results on Friday.
The other notable company will be Shin-etsu Chemical, which is the biggest manufacturer of silicon wafers. It is also one of the top providers of PVC, photoresists, and specialty chemicals.
More Nikkei 225 Index companies will publish their results next week. The most notable ones are Hitachi, Japan Tobacco, Takeda, Fujitsu, Panasonic, and Komatsu.
The Nikkei 225 Index will also react to the ongoing American earnings season. Hundreds of companies, including popular names like Tesla and Netflix will publish their financial results this week.
The other key catalyst for Japan stocks will be the upcoming Japan trade numbers on Wednesday and inflation report on Friday. Analysts expect the headline inflation to move from 2.7% in August to 2.9% in September.
Nikkei 225 Index technical analysis
Nikkei 225 chart | Source: TradingView
The weekly chart shows that the Nikkei 225 Index has been in a strong bull run this year and is now at the all-time high of ¥48,900.
It jumped above the important resistance level at ¥42,470, the highest point on June 8. The index has remained above the 50-week and 25-week moving averages.
The Relative Strength Index (RSI) and the Stochastic Oscillator have moved to the overbought level. That is a sign that they have strong momentum going on.
Therefore, the most likely scenario is where the Nikkei Index continues rising as bulls target the next key resistance at ¥50,000. A move below the support at ¥45,000 will invalidate the bullish outlook.
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