Japanese stocks survived yet another bearish barrage today. Early morning we had Money Stock figures (liquidity measures) released by BOJ which showed a 4.0% increase Y/Y for M2 + CD which was lesser than the 4.4% expected. Previous month’s figure has also been revised lower to 4.3%. M3 Money Stock similarly was lower at 3.2% Y/Y vs 3.5% expected. This suggest that BOJ is not really expanding monetary base at a pace expected by market, once again highlighting that market expectations of BOJ’s efficiency/efficacy may be over the top especially in light of the GDP miss on Monday.
Nikkei 225 prices did fall slightly, but we definitely did not hit the lows of yesterday with bears barely testing the 15,150 support level. In fact, prices started climbing up once again when the rest of the Asian markets opened, sending N225 to a high of 15,265. What is even more interesting is that traders were buying Japanese stocks even though BOJ monetary policy announcement was literally just around the corner. Hence, it is clear that risk appetite of traders are high, which suggest that Nikkei 225 prices will continue to enjoy significant support in the short run.
This notion is supported from the post BOJ reaction. In today’s monetary policy statement, the central bank maintained policy interest rate and monetary base. On top of that, BOJ appears to be distancing themselves from any potential of additional easing in the future by saying that economic outlook of Japan will remain on track even in the event of a sales tax hike. This is starkly different to last year’s stance where policy makers have been assuring the market that additional stimulus will be provided to counteract impact from burden of higher taxes. By denying that there is any negative impact, BOJ is basically saying that market will be basically on their own to bear the full brunt of the cost, which is a huge bearish factor for stock prices.
Nikkei 225 understandably traded lower, but once again prices failed to move significantly beyond 15,150 and instead rebounded higher back towards the soft resistance of 15,240. Prices has since tapered lower but considering that a disappointing BOJ statement did not achieve any bearish headway, it is more likely that 15,150 support will hold if we even reach there today.
On the longer-term chart, certainly bullish momentum is strong but one should really question whether buying Japanese stocks is considered wise right now. Yes momentum is up, and yes bullish sentiment is strong, but there is a whiff of bullish euphoria/mania right now. To be fair this “mania” has been going on for a long while as prices have been rallying even though Japanese fundamentals do not support such continued gains (the same could be said of US stocks as well), and traders would have lose out on the opportunity to make sizeable gains if they have stayed out of it. Hence, traders need to weigh the potential risk and reward should they wish to enter into the market right now.
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