Despite the broader sell-off which has dominated asset markets recently, the Nikkei has seen a strong reversal this week. Rallying more than 8% yesterday and over 20% on the week, Japanese equities have been the clear outperformer. The reason for this rally has been the reaction to speculation about BOJ QE purchases which, unlike we’ve see many other central banks, is now starting to support asset prices once again.
BOJ Announces Aggressive QE Purchases
At its March meeting, the BOJ announced that it will be “aggressively” purchasing ETFs at a level of roughly 12 trillion Yen per year ($112.55 billion). This is double the amount the bank had previously committed to purchasing. Along with this, the BOJ also said that it will increase its level of purchases in Japanese real estate funds by 180 billion Yen per year.
Traders now suspect that the BOJ has been actively buying Japanese equities in recent sessions helping to create the recovery which has been exacerbated by speculative buying too. Brokers have also noted demand from Japanese pension funds which creating a further atmosphere of demand among traders.
SoftBank Group Corp has seen the biggest rally among Nikkei-weighted stocks, rallying 19% on the week on the back of announcing $41 billion in asset sales and a record share buyback which helped buffer against the earlier slide in it share price.
Despite early fears, Japan has actually been one of the least affected countries in terms of the impact from COVID-19. Only 49 people have lost their lives in Japan compared with the several hundreds recorded in the US and UK and the several thousand recorded in Italy.
However, Japan hasn’t employed any special measures to protect against the virus. While all major events have bene cancelled, and schools closed, Japan is not on lockdown and many restaurants are even offering coronavirus discounts to entice diners.
Japanese Culture Protecting Against COVID-19?
Many experts have suggested that the Japanese culture (which is one of cleanliness and focus on health) is responsible for better protecting people against the virus. In Japan many people have been wearing masks in public for years (a custom which has now been adopted by many in the west to protect against the virus). Japanese culture is also known for being far less affectionate in the west. In Italy and France where people commonly greet each other with hugs and kisses, the Japanese are far more formal and so are less likely to pass on the virus this way.
For now, the rally in Japanese equities looks promising though the weekly close on the Nikkei will be the main tell. Currently, we are seeing a strong bullish reversal signal which suggests room for further upside in the near term.
Nikkei ( Bullish above 19078.6)
From a technical viewpoint. The Nikkei has recovered strongly off the 16170 lows and has now traded back above the 19078.6 level. While above here, a retest of the broken yearly S1 at 20440.8 is the next objective. Keep an eye on the weekly candle close this week as we are currently seeing a strong bullish reversal signal.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.