NIKKEI225: Strong Yen & AI-Tech Sell Off Lead Index Lower

Japanese stock follow US tech stock lower as yesterday’s selloff spills over to the Europe session.

The NAS100 lost 3.3% yesterday and the NIKKEI225 dropped 3.1% as concerns of Nvidia valuations take hold of investors’ fears. The stock dropped over 9% yesterday.

To add to the woes of extremely expensive AI-tech stocks, Japanese stock investors also face the headwinds of a strong yen.

A stronger yen will make exports more expensive and weigh on company profits. While a strong currency may fend off further rate hikes by the BoJ, it will still impact exporting companies’ bottom line.

The divergence of central bank policy is also a concern for Japanese stock investors. The Fed is on a monetary loosening cycle, making stocks more attractive. While the BoJ is on a tightening cycle, make stock less attractive.

Add to the equation a stronger yen, and valuations of Japanese stocks in foreign currency become even less attractive. Sky high valuation on AI stocks such as Nvidia, which is facing a price correction, also add to the dilemma.

Technical View

The chart above for the NIKKEI225 shows a market in a bearish trend. The last correction of that trend has taken the market to reach the resistance from the Ichimoku cloud and a previous high of 38,864 (blue line).

For now, the resistance of the cloud has held, and the market is moving lower as it stays below the cloud. The immediate support comes from a previous dip in April of 36,675 (green line). Should the market break that level, the next major support is at a previous high of 33,837 (black line).

To the upside, we would need to see the market break above the cloud to consider the possibility of a new bullish trend. The next resistance should the market break through the cloud would be at 39,447 (purple line).

To consider that a bull trend has completely taken over, we would need to see the market close above its all-time high of 42,465.