JP 225 forecast: the index is correcting, but a trend reversal is unlikely

The JP 225 stock index started a correction after the decline; however, the upward momentum is unlikely to be enough to reverse the trend. The JP 225 forecast for today is negative.

JP 225 forecast: key takeaways

• Recent data: the Bank of Japan kept the policy rate at 0.75%
• Market impact: the effect is favourable for the Japanese stock market

JP 225 fundamental analysis

The Bank of Japan’s decision to keep the short-term rate at 0.75% appears neutral to moderately favourable for the JP 225 in the near term, since the market has received a pause in policy tightening. The Bank also confirmed that financial conditions remain accommodative, Japan’s economy is recovering at a moderate pace, and, if the baseline scenario holds, the regulator is ready to raise the rate further as the economy and price dynamics improve. In other words, there is no immediate shock for equities, but the grounds for a sustained strong rally in the index are limited, because a pause does not mean the hiking cycle is over.

For the JP 225, this BoJ decision could be assessed as broadly neutral with a moderately restraining tone. Keeping the rate at 0.75% removes the risk of an immediate additional increase in the cost of money, which typically supports equities. However, the Bank of Japan simultaneously made it clear that it does not rule out further rate hikes, with one of the board members even voting for raising the rate to 1.0%.

JP 225 technical analysis

The JP 225 index maintains its downward momentum, indicating the formation of a persistent bearish trend. The nearest support level is located at 51,140.0, while the nearest resistance is around 54,670.0. At this stage, it is difficult to estimate how long this decline may last. The next potential downside target is seen at 48,265.0.

The JP 225 price forecast considers the following scenarios:

• Pessimistic JP 225 scenario: a breakout below the 51,140.0 support level could send the index down to 48,265.0
• Optimistic JP 225 scenario: a breakout above the 54,670.0 resistance level could drive the index to 56,515.0

Summary

For the JP 225, the decision to keep the key rate unchanged is unlikely to have a negative impact. In the short term, the market gets relief from the absence of another rate hike; however, in the medium term, the Bank of Japan’s signal remains fairly hawkish: the regulator believes the economy continues to recover, inflation expectations are rising moderately, and higher oil prices increase the risk of further rate hikes. The next downside target for the JP 225 is 48,265.0.

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