Nikkei faces major resistance – bulls remain in charge

The Japanese Nikkei stock index mirrored the bullish movement of other equity indices and was trading near 6-month highs this week, trying to jump above a significant selling area.

The April Reuters Tankan Survey in Japan reported the same -3.0 result for large manufacturers as in March, but the April index for non-manufacturers increased to 24 from 21.

BoJ will stick to its ultra-lose policy

Bond purchases by the Bank of Japan (BoJ) are not intended to monetize government debt, according to new BoJ Governor Kazuo Ueda, who also noted that “various factors determine interest rates.” Therefore, the policymaker said there is no need to revisit the government’s 2013 joint statement.

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Ahead of Ueda’s defense of the existing monetary policy, the recently appointed BoJ Deputy Governor Shinichi Uchida remarked, “Fiscal constraints won’t undermine the ability to carry out monetary policy.”

Fed to hike one more time

James Bullard, president of the Federal Reserve Bank of St. Louis, told Reuters in an interview on Tuesday that “interest rates will need to continue to rise in the absence of clear progress on inflation.” Inflation has to show signs of returning to goal, said Richmond Fed President Thomas Barkin on Monday. Raphael W. Bostic, president of the Federal Reserve Bank of Atlanta, said lately that inflation is too high even though the economy is expanding.

Warren Buffet likes Japanese stocks

In a recent interview with Nikkei, Warren Buffett stated that he plans to increase his stock holdings in Japan and is “very proud” of his investments in Japan’s top trade firms.

In August 2020, Berkshire Hathaway, Buffett’s conglomerate, said that it had bought stakes of over 5% in five of Japan’s largest trading companies: Itochu, Mitsubishi Corp., Mitsui & Co., Sumitomo Corp., and Marubeni. In November, Berkshire raised its holdings.

The possibility of Buffett making further investments in Japanese firms has been described by him as “always a matter of consideration.” Moreover, he said, “At the present time, we only own the five trading companies. A select handful is constantly on my mind.”

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Berkshire’s announcement this month that it intends to sell yen bonds for the first time since December 2022 stoked hopes for increased investment in Japan. According to one of the underwriters, the cash raising would be used to refinance existing debt. The famed 92-year-old investor has indicated his willingness to do business with the Japanese trade houses, which are also investing firms.

Technically speaking, if the price breaks above the 28,600 – 28,700 selling area, we could see another leg higher, targeting 2022 highs at 29,200. On the downside, the support is in the 28,000 area, and as long as the price remains beyond it, the outlook seems bullish.