Key points:
Japan’s Nikkei index showed a strong performance on Thursday, rising by 1% to reach 36,808.75 by midday. This positive movement was largely driven by new data showing that Japan’s economy grew faster than expected in the second quarter, with an annualised growth rate of 3.1%.
The broader Topix index also reflected this optimistic sentiment, increasing by 1.2% to 2,612.48. Financial stocks, which had lagged behind in recent market activity, saw a resurgence. Mizuho Financial Group and Sumitomo Mitsui Financial Group were among the top gainers, with their stocks rising 5.6% and 5.3%, respectively, as investors recognized their value.
Energy stocks, particularly in oil and coal, led the sectoral gains, rising 4.5%. Banks and securities firms also performed well, each gaining around 4%. The rally in these sectors indicates that investors are confident in their stability and potential for growth, despite the recent market fluctuations.
See: Nikkei225 on the rise, trading at 36638.15 on the VT Markets app.
The 1-hour chart for Nikkei225 shows a consistent uptrend, with the index closing at 36,638.15, just below the session high of 36,888.15. The chart indicates strong bullish momentum as reflected by the MA (5, 10, 30) lines that are trending upwards, and the MACD histogram shows a positive signal with the MACD line above the signal line, confirming the strength of the buying pressure.
The index has broken above a previous resistance level near 36,600, suggesting potential for further gains. However, traders should be cautious of possible consolidation or pullback near the 36,900 mark, where resistance might be encountered.
Japanese equities had previously experienced a sharp decline from mid-July to early August, with the Nikkei dropping 12.4% on August 5th due to concerns over a potential U.S. recession and a stronger yen. However, the index has since recovered those losses, although it still remains below its all-time high of 42,426.77, reached on July 11th.
The positive movement in Japan was also supported by developments in the U.S. market. U.S. stocks closed higher on Wednesday after inflation data suggested that the Federal Reserve might start cutting interest rates as early as September.
This prospect of rate cuts in the U.S. has provided additional support to global equity markets, including Japan’s.
Among the top-performing stocks in Japan, Fast Retailing added 1.3%, giving the Nikkei its biggest boost. SoftBank Group, known for its investments in AI startups, gained 2.6%, reflecting continued investor interest in technology stocks. Dentsu Group was the largest percentage gainer, surging 8.7%, followed by Kawasaki Heavy Industries and Socionext, both rising 8.1%.
The strong economic growth figures for Japan are likely to keep the Nikkei supported in the near future, especially if investors continue to find value in undervalued stocks. However, the index remains sensitive to external factors, particularly the actions of the U.S. Federal Reserve. If the Fed cuts rates as expected, it could provide further support to the Nikkei, but any signs of weakness in the U.S. economy might limit these gains.
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Financial stocks, which have recently seen renewed interest, could continue to attract buyers due to their relatively low valuations. However, global economic uncertainties, such as fluctuating energy prices and geopolitical risks, could present challenges. Investors should stay alert, as the market’s recovery is still fragile and could be easily affected by changes in sentiment.
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