AI stocks fuel Nikkei 225 Index gains as Japan bond yields soar

The Nikkei 225 Index continued its recent rebound as it moved back above the important resistance level at ¥50,000. This rebound happened as Japanese bond yields continued their bullish trend after last week’s BoJ interest rate decision. 

Nikkei 225 Index jumps as Japan bond yields soar

Japanese stocks and bond yields continued rising on Monday as market participants reacted to last Friday’s Bank of Japan interest rate decision, in which officials decided to hike interest rates for the first time in eleven months. 

The bank pushed rates to the highest level in three decades as officials hinted that more increases were coming. This rate hike came as data showed that inflation remained above 3%, a level it may remain at as the government implements a large stimulus package.

The Japanese ten-year yield jumped to 2.1% for the first time in decades and is much higher than last year’s low of 0.55%. Similarly, the two-year bonds continued falling, with the yield soaring to 1.115%, much higher than the year-to-date low of 0.549%. It has jumped to the highest point since 2007.

The bond market’s performance is a sign that investors anticipate that the BoJ will continue cutting interest rates in the coming meetings in a bid to curb the ongoing yen weakness. The USD/JPY exchange rate rose to a high of 157.82, much higher than the year-to-date low of 139.90.

Meanwhile, the Nikkei 225 Index is rising because Friday’s BoJ rate hike was priced in by market participants, with the odds on all prediction marketplaces rising to 99% before the meeting.

This is a situation where investors sell an asset before a major risky event and then buy the dip when it happens eventually.

Japan stocks also jumped after the US stocks rally 

Additionally, the rally was because of last Friday’s performance of American equities as top indices like the S&P 500 and Nasdaq 100 indices jumped. 

The Dow Jones Index rose by 183 points, while the Nasdaq 100 Index jumped by over 300 points as the recent jitters on the AI industry waned. It is common for the Nikkei 225 and other indices to jump when American stocks jump.

Most Japanese companies continued rising on Monday, with those in the artificial intelligence industry being the top gainers. Tokyo Electron stock jumped by 6.46%, bringing the year-to-date gains to 40.7%. 

Advantest, another AI company, rose by 4.3% this year, bringing its YTD gains to 122%, while Softbank rose by 3.9%. 

Japanese bank stocks have also soared after the BoJ interest rate hike because of the potential for more net interest margin. Mitsubishi UFJ Financial, Sumitomo Mitsui Financial, and Mizuho Financial stocks jumped by over 2% today. 

Other top gainers in the index were companies like Hitachi, Fast Retailing, Toyota Motor, Sony, and Nintendo.

Nikkei 225 Index technical analysis 

The daily timeframe chart shows that the Nikkei 225 Index has been in a strong bull run in the past few months, moving from a low of ¥30,375 in April to the year-to-date high of ¥50,510.

The stock has constantly remained above all moving averages and is now forming a bullish pennant pattern. 

Therefore, the index will likely have a strong bullish breakout, potentially to the all-time high of ¥52,660. A move above that level will point to more upside over time.

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