Chart alert: Why Japan’s Nikkei 225 can stage a minor recovery after its 4-day plunge

• Oil shock drove the sell-off: Since the start of the US–Iran War, Japan’s Nikkei 225 fell 6.1% in four days, underperforming global peers as Japan’s heavy reliance on imported oil heightens stagflation risks.
• Yield curve shift may support equities: A bull steepening of the Japanese government bond yield curve (10-yr minus 2-yr), partly driven by expectations of a less hawkish Bank of Japan, historically correlates with upside momentum in the Nikkei and may support a short-term rebound.
• Technical signals suggest a near-term bounce: The index has repeatedly held support around its 50-day moving average, with momentum indicators turning positive; a break above 56,530 could trigger a recovery toward 57,140–58,140, while a drop below 52,960 would invalidate the bullish scenario.

Since the start of the ongoing US-Iran war, Japan’s Nikkei 225 is one of the worst-performing key global benchmark stock indices due to being a major oil net importer, where the steep rally seen in oil prices in the past four days increases the odds of a negative feedback loop towards Japan’s economic growth prospects via the stagflation fear factor.

The Nikkei 225 staged a decline of 6.1% from last Friday, 27 February to Thursday, 5 March, underperforming other key Asia Pacific stock markets; Hong Kong’s Hang Seng Index (-4.9%), Singapore’s Straits Times Index (-3%), Australia’s ASX 200 (-2.8%), and China’s CSI 300 (-1.3%) (see Fig. 1).

Interestingly, the 4-day plunge of the Nikkei 225 is likely to stage a minor recovery at this juncture, supported by technical and intermarket factors.

Let’s dive deeper into these aspects.

Since the start of the ongoing major bullish trend phase of the Nikkei 225 from early April 2025, the upward trajectory of the Nikkei 225 has been supported and moved in a significant direct correlation with the steepening of the Japanese Government Bond (JGB) yield curve spread (10-year JGB yield minus 2-year JGB yield) (see Fig. 2).

As of 6 March 2026, the BoJ has conducted four interest rate hikes in its current tightening cycle, which began in 2024 as it exited from its ultra-easy monetary policy stance and negative interest rate environment.

The policy interest rate currently stands at 0.75%. Market participants polled by various media outlets expect the BoJ to continue its gradual interest rate hike policy by enacting 1 to 2 hikes in 2026 to bring the year-end target policy interest rate higher to 1.0%-1.25%.

The 2-year JGB yield is very sensitive to the latest monetary policy stance of the Bank of Japan (BoJ) as perceived by traders in the JGB market.

The 2-year JGB yield rocketed to a 30-year high of 1.31% on 9 February 2026 after the BoJ's last interest rate hike in December 2025, and Prime Minister Takaichi’s coalition party won a super majority in the lower house of Japan's parliament on 8 February 2026 snap election.

Since 9 February 2026, the 2-year JGB yield has softened by 7 basis points to trade at a current level of 1.24% at the time of writing and formed a “lower high” (see Fig. 2).

The current path of minor decline in the 2-year JGB, while still holding above its 50-day moving average, suggests that the BoJ may offer guidance to pause its interest rate hike cycle in the upcoming 19 March 2026’s monetary policy meeting due to the negative impact of higher oil prices arising from a prolonged US-Iran war.

A less hawkish expectation in BoJ’s future monetary policy stance can be implied by the recent rebound in the 10-year/2-year JGB yield curve spread, where a key support was tested at 0.84% (also its 200-day moving average) on Monday before it rebounded by 8 bps to trade at 0.92% at the time of writing (see Fig. 2).

Hence, a further bull steepening of the JGB yield curve (10-year minus 2-year) can translate into a minor recovery (at least in the first step after the 4-day plunge of the Nikkei 225 staged a retest on its 50-day moving average).

Let’s now look at the technical factors to determine Nikkei 225’s potential short-term trajectory (1 to 3 days).

The price actions of the Japan 225 CFD index (a proxy of the Nikkei 225 futures) have managed to find support at the 50-day moving thrice this week on three occasions; 3 March 2026, 4 March 2026, and 5 March 2026.

Watch the 54,100/52,960 key medium-term pivotal support, and a clearance above 56,530 increases the odds of a minor recovery to see the next intermediate resistances to come in at 57,140 (also the 20-day moving average) and 58,140, respectively (see Fig. 3).

On the flip side, a break with a daily close below 52,960 invalidates the recovery scenario to kickstart a medium-term downtrend phase (multi-week) to expose the next intermediate supports at 52,960 and 52,260 in the first step.

• The recent rebound seen on the 54,100/52,960 key medium-term support zone also confluences with the major ascending channel support in place since the 7 April 2025 low.
• The hourly RSI momentum indicator has staged a bullish breakout above its descending trendline resistance and jumped higher above the 50 level, a potential resurgence of minor bullish momentum condition.