Key Points
- Nikkei 225 fell 450 points to 48,090.65 after early gains on fiscal optimism faded.
- Yen weakened near 150 per dollar as traders priced in loose fiscal and monetary policy.
Asian equities opened cautiously on Tuesday, with Japan’s Nikkei 225 giving back early gains to close 0.93% lower at 48,090.65, following two days of strong rallies.
Traders took profit after the index’s record-breaking run, fuelled initially by optimism surrounding the election of fiscal dove Sanae Takaichi as the new leader of Japan’s ruling party.
Takaichi’s expected appointment as prime minister has strengthened expectations of aggressive fiscal stimulus and continued ultra-loose monetary policy. The yen weakened further, hovering near ¥150 per dollar, while Japanese government bond yields climbed as traders sold long-dated debt amid the prospect of heavier issuance to fund spending plans.
A smooth auction of ¥536.8 billion ($3.57 billion) in 30-year JGBs helped stabilise markets, though the steepening yield curve underscored investor caution.
Finance Minister Katsunobu Kato reaffirmed the government’s vigilance against “volatile movements” in the currency market, signalling possible intervention if yen weakness accelerates.
Across Europe, political risk also dominated headlines. The surprise resignation of Sebastien Lecornu as France’s prime minister deepened political turmoil in Paris and pushed French OAT futures lower, while the euro slipped 0.14% to $1.1696.
Analysts at Macquarie noted that President Emmanuel Macron could face growing pressure to dissolve the National Assembly if coalition negotiations falter.
Despite global uncertainty, some bright spots emerged. U.S. chipmaker AMD (NASDAQ: AMD) announced a multi-year deal to supply AI chips to OpenAI, potentially generating tens of billions in annual revenue.
However, optimism over artificial intelligence failed to lift broader risk appetite. Nasdaq futures dipped 0.02%, while S&P 500 futures eased 0.05% from record highs.
Technical Outlook
The Nikkei 225 is trading at 48,090.65, down 0.93% on the day, retreating after a strong multi-week rally. Despite today’s correction, the index remains firmly within an uptrend, having surged nearly 60% since the April low of 30,397.3.
The pullback appears to be a short-term pause rather than a reversal, as traders take profits following the break above the key 48,000 psychological level.
Technically, the 5-, 10-, and 30-day moving averages continue to show bullish alignment, with price still hovering above them, indicating the broader trend remains upward.
Immediate resistance sits at 48,500–48,700, where the market recently stalled. On the downside, support lies near 44,200, followed by a stronger base around 39,800, both of which mark previous breakout zones.
The MACD indicator shows early signs of momentum cooling. The MACD line remains above the signal line, but the histogram is narrowing, suggesting waning bullish strength.
If the divergence deepens, short-term traders might see a deeper retracement before the next leg higher.
Cautious Forecast
Fundamentally, the Nikkei’s resilience continues to be supported by a weak yen, ongoing foreign inflows, and expectations of loose monetary policy under Japan’s new leadership.
However, concerns around U.S. fiscal policy and slowing Chinese demand may cap further gains in the near term.
