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There have been plenty of key developments across the markets this week with plenty of moves to focus on as we begin the final month of Q1. Chatting with traders ahead of the weekend, it seems the move capturing the most attention is the almost 3% rally in the Nikkei which has broken out this week to fresh three-month highs. So, let’s take a look at what caused the move and, as ever, if you caught it. Well done! If you missed it? There’s always next week.  
 

What Caused the Move?

Supportive BOJ Backdrop

There have been a couple of factors contributing to the rally in the Nikkei this week. The first is the fresh weakness we’ve seen in JPY on the back of recent comments from incoming BOJ chief Ueda. There had been a great deal of speculation ahead of Ueda’s first formal comments regarding whether he would be on the hawkish or dovish side. Speaking last week, Ueda told the Japanese parliament that he was in no rush to tighten BOJ monetary policy and warned that considerable uncertainty remained within the Japanese economic outlook.
 

No Imminent BOJ Tightening

Speaking again this week, Ueda reaffirmed these comments saying that the current low-rate environment remains appropriate for the Japanese economy. Looking ahead, however, Ueda did say that should inflation hold sustainably at or above the bank’s target, the BOJ will need to consider its exit options. In the meantime, Ueda urged the bank to be creative with its monetary policy, referring to the bank’s yield curve control program.
 

Tokyo Inflation Falls

At the end of the week, the Nikkei was then boosted by the latest economic data out of Japan. Tokyo CPI was seen falling back last month by 1%. After spiking higher over the previous month to fresh multi-decade highs, the drop in inflation has been taken as a welcome sign that the BOJ will not need to tighten policy near-term which is also helping lift sentiment in the Nikkei.
 

Bullish Outlook

Looking ahead, the Nikkei should enjoy further gains near-term. A supportive BOJ backdrop, a broader pick-up in risk sentiment, and a technical breakout all suggest there is scope for the index to continue higher next week. The focus then will be on Kuroda’s final BOJ meeting and whether he leaves with any hawkish signals in place or sticks to his guns one last time.
 

Technical Views

Nikkei

(Click on image to enlarge)

The rally in the Nikkei this week has seen the index breaking out above the 27422.9 level and above the February highs. Additionally, the price has broken above the bear channel resistance line, and, with momentum studies turning bullish, while above here the focus is on a further pus higher towards 28356.6 next. 

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