Nikkei 225 index is in a relentless bull run: is it a good buy now?


Japan stocks are thriving as demand from locals and foreigners rose and as the economic activity rebounded. The Nikkei 225 index was trading at ¥30,950, the highest level since 1990. In all, the index has soared by over 352% from the lowest point during the Global Financial Crisis and by ~18% this year. Topix, another blue-chip index, has jumped to the highest level in decades.

Japan private sector is booming

The Nikkei 225 and Topix indices jumped on Tuesday after the latest manufacturing and services PMI figures. According to S&P Global, the manufacturing PMI jumped to 48 in May, better than the median estimate of 47.3. 

Another figure showed that the services PMI rose to 51.8 in May, which was equally better than the median estimate of 48.9. A PMI reading of 50 and above is a sign that a sector is doing significantly better.

These numbers show that Japan’s economy is recovering albeit at a slower pace. It is being helped by low interest rates and the changing macro events such as falling shipping costs.

Nippon Paper Industries was the best-performing Nikkei 225 constituent on Tuesday as the stock jumped by over 14%. Japan Steel Works shares jumped by over 3%. Other top performers on Tuesday were Trend Micro, Unitika, Recruit Holdings, and Yamaha Motors.

The best-performing stocks in the index year-to-date are Kobe Steel, Advantest, Dainippon Screen, Yokohama Rubber, and Kaisen Railway. Sogo soshas, which Warren Buffett has invested in like Mitsubishi, Mitsui, Sumitomo, Itochu, and Marubeni have all jumped by double digits this year.

The Nikkei 225 index is also reacting to the ogoing debt ceiling issue in the United States. It is an important issue for Japan since it is the biggest holder of US public debt. While no decision has been made, analysts believe that the two sides will ultimately reach an agreement before June 1st.

Nikkei 225 index forecast

Nikkei index chart by TradingView

The daily chart shows that the Nikkei 225 index has been in a strong bullish trend in the past few months. It made a key milestone when it moved above the key resistance level at ¥29,251, the highest level on August 17.

The index has jumped above the 25-day and 50-day exponential moving averages (EMA). Further, MACD has moved above the neutral point. The momentum and chande oscillator have continued rising.

Therefore, the index will likely continue rising as buyers target the next key resistance level at ¥32,000. A move below the support at ¥30,000 will invalidate the bullish view.

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