The Nikkei 225 Index continued its strong rally this week, reaching its highest level on record as the “Takaichi trade” accelerated. Its surge coincided with the ongoing Japanese yen crash. It jumped to a record high of ¥54,435, up by 76% from its lowest point in April last year.
Japan stocks jump as the “Takaichi trade” continues
The Nikkei 225 Index, which tracks the biggest Japanese companies, has been in a strong bull run this year. This rally is part of the so-called “Takaichi trade”, which is named after the Japanese Prime Minister.
Takaichi’s policies have mirrored those of Shinzo Abe, who preferred low interest rates and more government spending. She has already requested billions of dollars in a stimulus package meant to support the economy.
Meanwhile, there are rumors that Takaichi will call for a snap election soon, as she seeks full mandate to lead. She has enjoyed high approval rates since becoming the Prime Minister in October, meaning that she has a good chance of winning by a landslide.
The Nikkei 225 Index and the Topix are also benefiting from the ongoing yen devaluation. Data shows that the USD/JPY exchange rate surged to 159.8, a few points below 162, the highest point in July 2024. It has soared by over 13% from its lowest level in April last year.
A weaker yen normally boosts many Japanese companies that sell products abroad. For one, it makes their products cheaper abroad and then helps to boost exporter profits over time.
The yen is crashing as concerns that Takaichi’s policies will worsen the country’s finances. This explains why yields of the super-long bonds jumped to record levels.
South Korea and Japan relations
The Nikkei 225 Index is also soaring as Takaichi courts South Korea as tensions with China continue. The crisis between China and South Korea started after she suggested that her country would be willing to support Taiwan in case of an invasion.
Takaichi said that she hopes to see more cooperation with South Korea after meeting with President Lee Jae Myung in Tokyo. She said:
“There will be further talks between relevant departments to deepen cooperation, both in terms of the economy and economic security, in ways that are strategic and beneficial to both sides.”
With all this happening, investors are now focusing on the Bank of Japan (BoJ). After hiking rates in December, analysts now expect more tightening in April.
The ongoing Nikkei 225 Index rally also mirrors that of ther Asian indices. For example, South Korea’s Kospi Index has jumped to a record high this year, continuing a trend it started last year. Hong Kong’s Hang Seng Index has also soared.
The best-performing stocks were Toho Zinc, Yaskawa Electric, Shiseido, and Mitsui Mining & Smelting. All these stocks have jumped by over 5% on Wednesday.
Nikkei 225 Index technical analysis
The daily chart shows that the Nikkei 225 Index has soared to a record high. This surge happened after it formed a bullish pennant pattern, which is made up of a vertical line and a symmetrical triangle. It has moved above the important resistance at ¥52,590, its highest point on November 4.
Therefore, the index will likely continue rising as bulls target the key resistance level at ¥55,000. A move below the support at ¥52,590 will invalidate the bullish view.
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