The Nikkei 225 index remained in a tight range on Wednesday after Japan released strong GDP data, raising the case for another rate hike next week. It was trading at ¥39,187, a few points below the recent high of ¥39,765.
Japan’s economy is doing well
There are signs that the Japanese economy is doing modestly well. According to the country’s statistics agency, the economy grew by 0.3% QoQ in the third quarter, higher than the median estimate of 0.2%.
Japan’s economy grew because of government spending, which helped to offset a retreat in capital expenditure and private consumption.
Another report released on Wednesday showed that the county’s external demand dropped by 0.2% in the third quarter, better than the median estimate of minus 0.4%. The BS large manufacturing conditions rose from 4.5 in Q3 to 6.3 in Q4, higher than the median estimate of 1.8.
Another report showed that Japan’s inflation was still higher than expected. The producer price index (PPI) rose from 3.6% to 3.7% on an annual basis and to 0.3% monthly.
The next important economic data to watch will be Friday’s Tankan survey numbers, which will provide more color about the state of the economy. Analysts expect these numbers to reveal that small and large businesses did well in the fourth quarter.
All these economic numbers are important because the Bank of Japan will meet next week and deliver its decision. Economists believe that the BoJ will maintain a fairly hawkish tone and then hike interest rates by 0.25% in this meeting. In a recent statement, a Bloomberg analyst said:
“Putting it all together, we think the Bank of Japan will take the GDP report as more evidence that the economy is becoming sturdy enough to withstand a further reduction in stimulus.”
Top Nikkei index movers
Most companies in the Nikkei 225 index were largely unmoved on Wednesday. Kawasaki Heavy Industries stock rose by 7.75%, making it the best performer in the index. The company manufactures products like trains, ships, and turbines.
The other best-performing companies in the Nikkei index were IHI Corp, Konica Minolta, T&D Holdings, and Kuraray.
Softbank, one of the biggest companies in the country, rose by 0.8%, while Toyota dropped by 0.35%. The top laggards on Wednesday were firms like Ebara, Sumitomo Dainippon Pharmaceuticals, Sumitomo Chemical, and Daiichi Sankyo.
Looking ahead, the next potential catalyst for the Nikkei 225 index will be the US inflation data on Wednesday. This is an important number because of its impact on next week’s Federal Reserve decision.
A higher number means that the Fed may not hike rates, which will likely have an impact on global stocks.
Nikkei 225 index analysis
Nikkei index chart | Source: TradingView
The daily chart shows that the Nikkei 225 index has been in a tight range in the past few days. It has formed a symmetrical triangle pattern and is now slightly below its upper side.
The index has remained slightly above the 50-day and 100-day Exponential Moving Averages (EMA). Also, the Relative Strength Index (RSI) and the MACD indicators have moved sideways.
Therefore, the Nikkei index will likely have a strong move in the next few days since the two lines of the triangle pattern are nearing its confluence level. A bullish breakout will likely see it rise above the key resistance point at 40,000.
The alternative scenario is where it drops below the 50-day and 100-day moving averages and retests the lower side of the triangle pattern. A break below the lower side will point to more downside, potentially to ¥38,000.
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