Nikkei 225 technical analysis points to a drop to ¥27,000

The Nikkei 225 index drifted downwards on Monday as investors reacted to the latest Japan local elections and the important change at the Bank of Japan (BoJ). The index, which tracks the biggest Japanese companies, was trading at ¥27,635, which was a few points above last week’s low of ¥27,440.

Japan local elections, changes at the BoJ

The main catalyst for the Nikkei index was the latest local elections in Japan, where the ruling Liberal Democratic Party won several important local elections. For example, Governor Naomichi Suzuki retained his post as the governor of Hokkaido.

The victories will boost the government of Fumio Kishido, who has regained popularity for repairing relations with South Korea. His visit to Kyiv also helped gain his popularity. It also means that he could now delay calling a national election, which was expected to happen in the coming months.

The Nikkei index also moved sideways after the Bank of Japan gained a new governor. As I wrote in this article, Haruhikop Kuroda’s term ended last week. He was replaced by Kazuo Ueda, who is now expected to tweak some of Kuroda’s policies.

Under Kuroda, the central bank left interest rates at a record low and implemented the biggest quantitative easing program that pushed the balance sheet to over $8 trillion. In all, Kuroda implemented a stimulus package valued at over $11 trillion, which is a big one considering that Japan has a GDP of less than $5 trillion.

The best-performing Nikkei 225 index stocks were Keio Corp, Ube Industries, Konami, Takashimaya, and Yokohama Rubber that jumped by over 2%. Softbank share price dropped by 0.95% while Mazda, Toyota, Suzuki, and Daikin Industries dropped by more than 1%.

Nikkei 225 forecast

The 4H chart shows that the Nikkei index has been under intense pressure in the past few days. It remains a few points below this month’s high of ¥28,283. It is also consolidating at the 50-period moving average while the Relative Strength Index (RSI) has moved below the neutral point. Therefore, I suspect that the index will remain under pressure as traders focus on the next actions by Kazuo Ueda at the Bank of Japan. If this happens, the next level to watch will be at ¥27,000.

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