The decline in the Nikkei 225 was also caused by currency and policy expectations. The higher oil prices can weaken the Japanese yen as it increases the import bills. A weakened yen sustains exporters but this advantage neutralizes when there is a heightened risk in the global demand. At the same time, rising global yields and inflation concerns limit the flexibility of the Bank of Japan. This puts a doubt on monetary policy support. Therefore, the Nikkei 225 remains between the external shocks and internal economic restraints.
Nikkei 225 Technical Outlook: Pullback Within a Bullish Trend
Despite the strong breakout in the Nikkei 225 last week, the failure of U.S.-Iran talks opened the Nikkei 225 with a gap downside. Despite this gap, the overall picture for the Nikkei still remains bullish. Therefore, any correction in the index may be considered as a buying opportunity for the next uptrend.
As long as the Nikkei 225 index remains above 50,000, it may consolidate to form a bottom for the next rally higher. RSI also shows that the index is consolidating above the mid-level, which indicates further upside in the short term. A recovery above the 57,500 level will introduce another rally towards 60,000. However, a break above 60,000 will push the index further upside towards the 65,000 level.