The Nikkei 225 Index retreated sharply this week, reaching a low of ¥62,210, its lowest level since May 22nd this year. It has slumped by 8.40% from its highest point this year, and is slowly nearing a correction.
Nikkei 225 Index retreats amid geopolitical uncertainty
Japan stocks dropped sharply as investors reacted to the soaring uncertainty in the Middle East as the ceasefire between the US and Iran continued. President Donald Trump launched fresh attacks against Iran overnight, a move meant to pressure the country into a deal.
Iran has remained adamant and responded to US attacks. It launched retaliatory attacks against some key US interests in countries like Kuwait and Bahrain. It also warned that it will intensify its attacks in response to US actions.
As a result, crude oil prices jumped, with Brent soaring above the key resistance level of $94.30. The West Texas Intermediate (WTI) jumped to $91, and analysts expect the uptrend to continue as the crisis in the region escalates.
Besides, crude oil inventories have been in a strong downward trend in the past few months. In the United States, the Strategic Petroleum Reserves (SPR) have dropped to the lowest point in over 20 years.
Japan is highly exposed to these issues as the country imports most of its crude oil from the Gulf region. As a result, there is a likelihood that Japan’s inflation will continue rising in the coming months, putting pressure on the Bank of Japan (BoJ) to start hiking interest rates.
Analysts believe that the bank will hike interest rates in the coming meeting. Indeed, the bond market is sending this warning, with the ten-year yield rising to 2.68%, while the two-year rose to 1.41%.
Global stock market is facing volatility
The Nikkei 225 Index is also struggling amid the rising volatility in the global financial market. US stocks plunged on Wednesday, with the Dow Jones shedding over 950 points, and the S&P 500 losing 120 points. The Dow Jones plunged by over 500 points.
The same is happening in other countries. For example, in Hong Kong, the Hang Seng Index dropped by over 1.45%, while in South Korea, the Kospi Composite fell to KRW 7,435, down sharply from the year-to-date high of 8,935 KRW. Other global indices have also slumped amid this volatility and as investors book profits.
The top laggards in the Nikkei 225 Index were companies like Kawasaki Heavy Industries, Sumitomo Electric Industries, Sumitomo Pharma, TDK Corporation, and Mitsubishi Electric.
Nikkei 225 Index technical analysis
Nikkei 225 Index chart | Source: TradingView
The daily chart shows that the Nikkei 225 Index has slumped in the past few days. It has moved from a high of ¥68,797 in June to a low of ¥62,210 today.
The index has remained slightly above the 50-day Exponential Moving Average (EMA). It has also dropped to the Major S/R pivot point of the Murrey Math Lines tool.
Therefore, the most likely scenario is where the index remains under pressure in the near term. If this happens, the next key level to watch will be at the psychological level of ¥60,000.
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