Navigating the Nikkei225's Volatility
Navigating the Nikkei225's Volatility: BOJ's Rate Hike, Market Reactions, and Future Implications
By Eric Lee, Sales Director of Phillip Nova
BOJ’s Surprise Rate Hike and the Initial Market Reaction
After Bank of Japan surprised the market by increasing its interest rate by 0.25% on 31 July and BOJ Gov. Kazuo Ueda said at a news conference then of the possibility of further rate hikes, it sent Nikkei225 into a sharp dive, falling 8000 over points in less than a week.
Compounding Factors: U.S. Employment Data and Middle-East Tensions
To be fair, a confluence of other factors such as bad U.S. employment data and fear of Middle East conflict expanding into a full-out war between Iran and Israel, probably added fuel to the sharp decline. Yet, BOJ got the bad press for it as the rapid unwinding of Yen carry trades caused a selling down in the global markets as well as investors fled to safe haven assets such as bonds and gold.
reuters.com/markets/asia/boj-wont-raise-rates-when-markets-unstable-deputygovernor-says-2024-08-07/
The Yen Carry Trade Unwinds: A Global Market Phenomenon
In a turn of events, BOJ Deputy Gov. Shinichi Uchida, in contrast to Ueda’s hawkish comments the previous week, then assured the market that they will not be hiking rates when market is unstable. Since then, Nikkei225 rebounded to the current level of 36,000.`
Nevertheless, the can of worms had been opened, and market had woken up to their complacency of the Yen carry trade problem, and in view of the expectation of rate cut by Fed in September, global investors may make use of the rebound to continue unwind their carry trades, which may add some selling pressure in Nikkei225 and GBP/JPY.
Looking Ahead: Potential Continued Pressure on Nikkei225 and GBP/JPY
In my previous post, I’ve introduced referring to GBP/JPY as a proxy on the strength of Nikkei225 due to their correlation. From the attached 4-hourly chart of Nikkei225, we can determine that the resistance levels are around 38000 and 41000, based on the concentration of trades done around those levels, as highlighted by Volume Profile indicator.
Short-term traders can refer to MACD indicator and GBP/JPY to signal them on the possible change of trends on the 4-hourly chart.
Trade Nikkei 225 at only 50 cents* now
By Eric Lee, Sales Director of Phillip Nova
BOJ’s Surprise Rate Hike and the Initial Market Reaction
After Bank of Japan surprised the market by increasing its interest rate by 0.25% on 31 July and BOJ Gov. Kazuo Ueda said at a news conference then of the possibility of further rate hikes, it sent Nikkei225 into a sharp dive, falling 8000 over points in less than a week.
Compounding Factors: U.S. Employment Data and Middle-East Tensions
To be fair, a confluence of other factors such as bad U.S. employment data and fear of Middle East conflict expanding into a full-out war between Iran and Israel, probably added fuel to the sharp decline. Yet, BOJ got the bad press for it as the rapid unwinding of Yen carry trades caused a selling down in the global markets as well as investors fled to safe haven assets such as bonds and gold.
reuters.com/markets/asia/boj-wont-raise-rates-when-markets-unstable-deputygovernor-says-2024-08-07/
The Yen Carry Trade Unwinds: A Global Market Phenomenon
In a turn of events, BOJ Deputy Gov. Shinichi Uchida, in contrast to Ueda’s hawkish comments the previous week, then assured the market that they will not be hiking rates when market is unstable. Since then, Nikkei225 rebounded to the current level of 36,000.`
Nevertheless, the can of worms had been opened, and market had woken up to their complacency of the Yen carry trade problem, and in view of the expectation of rate cut by Fed in September, global investors may make use of the rebound to continue unwind their carry trades, which may add some selling pressure in Nikkei225 and GBP/JPY.
Looking Ahead: Potential Continued Pressure on Nikkei225 and GBP/JPY
In my previous post, I’ve introduced referring to GBP/JPY as a proxy on the strength of Nikkei225 due to their correlation. From the attached 4-hourly chart of Nikkei225, we can determine that the resistance levels are around 38000 and 41000, based on the concentration of trades done around those levels, as highlighted by Volume Profile indicator.
Short-term traders can refer to MACD indicator and GBP/JPY to signal them on the possible change of trends on the 4-hourly chart.
Trade Nikkei 225 at only 50 cents* now
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