Why the Nikkei uptrend looks set to resume

Leading the recovery in Asian stock markets yesterday, the Nikkei 225 finished the day 2.08% higher at 28517, boosted by strong gains in semiconductor stocks, including Tokyo Electron and Advantest.

Japan flag


The outperformance in semiconductor stocks promoted by reports Japan will offer tax breaks to revive domestic chipmaking to reverse decades of decline in the industry.

More broadly, the Japanese economy (and the Nikkei) has benefitted from a decision to close Japanese borders to all new foreign arrivals in late November. This decision has helped Japan avoid a surge in new Omicron covid cases being experienced elsewhere in the region, including South Korea and here in Australia.

The Nikkei is an indirect beneficiary of policy easing in China and central bank policy divergence. Specifically, while some developed market central banks, including the Federal Reserve and Bank of England, have commenced tightening policy, the Bank of Japan can remain patient.

Mindful that even after decades of ultra-loose monetary policy, inflation in Japan remains stuck near 0%, a long way from the Bank of Japan’s target.


As the chart below shows, the Nikkei has spent the last three months of 2021 tracing out a correction after completing a five-wave advance from the 15,680 March 2020 Covid low at the September 30,620 high. The correction has unfolded in a triangular five wave “abcde” and appears complete at Monday's 27,745 low.


Should the Nikkei break and post a daily close above trendline resistance currently at 29,650ish, it would generate a buy signal in expectation of a retest and break of the 30,715 high before a move towards 32,000.

Nikkei Daily Chart 22nd of December

Source Tradingview. The figures stated areas of December 22nd, 2021. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

  1. Open a Forex.com account, or log in if you’re already a customer.
  2. Search for the pair you want to trade in our award-winning platform.
  3. Choose your position and size, and your stop and limit levels.
  4. Place the trade.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account