Key points:
The Nikkei index surged by as much as 2.21% during early trading on Friday before paring gains later in the day, closing 1.53% higher at 37,723.91. This marks its best weekly performance in over a month, with a weekly rise of 1.57%.
See: Japan’s Nikkei surged, trading at 38177.85 on the VT Markets app.
The Nikkei 225 saw a strong rally, closing at 38,170.15, driven by gains in the chip sector. Tokyo Electron, a major manufacturer of chip-making equipment, surged by 5.32%, helping to boost the overall index. The index crossed the 38,000 level, reflecting positive sentiment from the broader US tech market, which has seen a similar upward trend.
On the hourly chart, the price has been trending higher, with a clear upward trajectory supported by the moving averages (5, 10, 30), which show a bullish alignment. The MACD is in positive territory, further confirming the strong momentum in the market.
If the current trend continues, we could see the Nikkei 225 testing the 38,500 level as the next potential resistance. On the downside, 37,600 is the immediate support, with further pullbacks possibly targeting the 37,200 region.
The Topix index also reflected a positive week, advancing by 0.97%. However, the strength of the yen, which rose by 0.45% to 141.98 against the dollar, curbed the enthusiasm of market participants.
This yen appreciation came after the Bank of Japan (BOJ) released its updated assessment of the economy, which took a more optimistic view of consumption. The BOJ held its short-term interest rates steady at 0.25%, as widely expected, following its rate hikes earlier in the year.
The market reacted to the BOJ’s upgraded outlook, which now sees private consumption on a “moderate increasing trend” rather than just “resilient.”
This shift signalled that the central bank could be setting the stage for future rate hikes, which traders will watch closely as the yen’s strength could continue to challenge Japanese exporters. A stronger yen reduces the value of overseas revenue for companies like Toyota and Honda, which saw more modest gains on Friday, rising 0.9% and 0.84%, respectively.
Shares of Fast Retailing, the owner of Uniqlo, rose by 4.16%, making it one of the biggest supports for the Nikkei in points terms due to its heavy index weighting. Despite these gains, many market participants remained cautious ahead of a long weekend, as Japan’s markets will be closed on Monday for a national holiday.
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We expect that yen strength will continue to weigh on Japan’s export-heavy sectors, while the prospect of gradual BOJ rate hikes could bring further adjustments to market expectations.
Traders will also monitor global economic factors, particularly from the US, which may influence the tech-driven momentum seen this week.
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