The Nikkei 225 index remained on edge on Tuesday as investors focused on the upcoming Honda Motor and Nissan merger and the Bank of Japan (BoJ) minutes. The index retreated by 0.30% to ¥39,000, down by 8% from its highest level this year.
Nissan and Honda merger deal
The biggest Nikkei 225 news of the year is likely the ongoing Nissan and Honda Motor deal that will create the third-biggest automaker by sales.
Honda Motor stock jumped by as much as 17% on Tuesday, making it the best-performing member of the Nikkei 225 index. Mitsubishi Motors, which is partially owned by Nissan, rose by 2.77%, while Nissan was down by 0.11%.
Honda shares jumped after the company announced that it would start buying back its own shares as part of the deal. Most analysts believe that combining the two companies will likely benefit Nissan at the expense of Honda because of its more difficult cash position.
Carlos Ghosn, the former Nissan CEO, has warned that the deal is a desperate move by Nissan, a company whose business has struggled in the past few years. He noted that the deal will likely have no major synergies and other benefits.
The two companies are facing substantial headwinds, especially in China, where companies like Nio, BYD, and Li Auto have become highly popular. This is notable since Honda and Nissan made a lot of money in the country in the past few years.
Analysts hope the Nissan and Honda merger will lead to more deals in 2025. Dealmaking in Japan has largely been non-existent even as the country went through a prolonged period of low interest rates.
BoJ minutes
The Nikkei 225 index also wavered after the Bank of Japan published minutes of the last monetary policy meeting.
In it, the bank decided to leave interest rates unchanged at 0.25%, catching some analysts by surprise since they expected it to hike by either 0.10% or 0.25%.
BoJ officials decided to pause because of the United States, where Donald Trump will become the next president in January. They expect more volatility because Trump has pledged to increase tariffs on imports.
Analysts believe the BoJ will likely hike interest rates again in 2025, bringing the benchmark lending rate to 0.50% since inflation has risen.
Higher rates in Japan will likely be negative for the Nikkei 225 index since it will make Japan bonds more attractive.
Most Nikkei 225 index companies were largely muted on Tuesday because it was Christmas Eve. The other top gainers were companies like Chubu Electric, Tokyo Electric, Kansai Electric, and Resona Holdings. All these firms rose by a modest 2%.
On the other hand, some of the top laggards were firms like Toho, Furukawa Electric, Fujikura, Rakuten, and Renesas Electronics.
Nikkei 225 index analysis
Nikkei 225 chart by TradingView
The weekly chart shows that the Nikkei 225 index has been in a tight range in the past few months. It has moved slightly above the 50-week Exponential Moving Average (EMA).
The index has also formed a symmetrical triangle pattern, with the two lines nearing their confluence. Therefore, this pattern means that the index is about to make big moves ahead.
This triangle is happening after the index made a big bullish move, meaning that it might make a strong comeback in the next few days. If this happens, the next point to watch will be at ¥42,000. The alternative scenario is where the index makes a bearish breakdown and falls to ¥38,00 early next year.
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