Nikkei 225 Rallies on Impending Fiscal Stimulus Measures
The recent two days of rallies in the Nikkei 225 have been supported by potential fiscal stimulus measures on the horizon. Technical analysis and TOPIX sector rotation indicate a likely start of a major impulsive up move sequence on the Nikkei 225.
Recent Market Performance
Following our prior report, “Nikkei 225: Potential bullish key reversal week after 4 weeks of decline” on 8 August 2024, the Nikkei 225 has rallied as expected. It gained 15% to reach an intraday high of 40,257 on 15 October, followed by a minor corrective decline of 6% to a low of 37,713 on 25 October.
Impact of Political Factors
The recent snap general election in Japan resulted in the defeat of the long-ruling Liberal Democratic Party (LDP) led coalition. This opens up opportunities for the LDP to form alliances with smaller opposition parties to secure a governing majority. Prime Minister Ishiba has hinted at implementing pro-growth fiscal policies, including a significant economic stimulus package that could exceed last year’s budget.
The Nikkei 225 reacted positively to these developments, erasing initial losses and staging a two-day rally following the election results.
Risks Ahead
The main risk for Nikkei 225 bulls is the opposition party’s proposed policies, such as financial income taxation and tax increases, which could impact market sentiment negatively.
Technical Analysis and Market Outlook
Recent price movements in the Nikkei 225 and cyclical sectors suggest a bullish reversal. The index’s recovery has been led by sectors like Banks, Financials ex banks, and Automobiles & Transportation Equipment. The odds are now in favor of a potential major impulsive up move sequence in the Nikkei 225.
Key levels to watch include the 35,850 support and the 40,060 resistance. A break above 40,060 could lead to further gains towards the 42,600/43,400 resistance zone. Conversely, a break below 35,850 could signal a corrective decline towards the 30,460 support level.
Overall, the Nikkei 225 remains poised for further upside potential, supported by impending fiscal stimulus measures and positive technical indicators.