Weak Yen Validates $150 Ceiling for Nikkei 225: Chart

(Bloomberg) — Overseas investors in Japanese equities beware: the yen’s losses are likely to outpace the Nikkei 225 Stock Average’s gains in dollar terms as monetary policy diverges in Japan and the U.S.

The CHART OF THE DAY shows that the Nikkei 225 measured in dollars closed at $ 158.76 on Monday, little changed from the highest since August 2000 reached on March 13, as Japan’s currency traded within one yen of a seven-year low versus the dollar. The lower panel shows large speculators renewed bets this month the currency will weaken, after previously trimming wagers against the yen to the least since November 2012.

More from Bloomberg.com: Japan Drives Asian Stock Gains Pre-BOJ; Oil at 6-Year Low

The equity gauge’s elevated level is unsustainable and will decline towards $ 150, based on technical indicators, a ceiling that’s largely held since 2000, says Daisuke Karakama, chief market economist at Mizuho Bank Ltd. So, even if the stock benchmark rallies further in yen terms, the dollar-based Nikkei won’t go much higher, he said.

“The Nikkei’s rally looks overheated from the point of view of foreign investors, given the likelihood of yen weakness,” he said. Domestic stock investors, especially pension funds, helped fuel the index’s yen-based rally, he said.

More from Bloomberg.com: Dollar Rally Pauses as Economic Surprise Index Slumps Before Fed

The Federal Reserve concludes a two-day policy meeting Wednesday in Washington, with traders focusing on signals about the timing of the U.S. central bank’s first interest-rate increase since 2006. The Bank of Japan expanded its monetary easing in October, and 23 of 34 economists in a Bloomberg News survey forecast the BOJ will increase stimulus by Oct. 31.

“As the Fed is likely to remove ‘patience’ from its statement at this week’s meeting and move closer to a lift-off, the yen may weaken further to 124-to-125 per dollar in the next couple of months,” Karakama said. That presages a “healthy correction” for dollar-based stock investors, and the $ 150 level has been a consistent measure of risk tolerance for foreigners, he said.

More from Bloomberg.com: Dollar Rally Falters on Mixed Data

The Nikkei has closed above $ 150 since Feb. 12, a streak of 23 days. After falling below that level in 2000, the longest it had sustained gains above $ 150 was 15 days in July and August last year.

To contact the reporters on this story: Chikako Mogi in Tokyo at cmogi@bloomberg.net; Hiroko Komiya in Tokyo at hkomiya1@bloomberg.net

To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net Lee Miller, Jonathan Annells

More from Bloomberg.com

  • Noble Debt Trades Like Junk With Record Maturities During Rout
  • Is Hong Kong’s Property Boom Nearing an End?
  • Former National Australia Dealer Jailed for Insider Trading

Nikkei Futures

nikkeifutures.org@imediaone.com

You may also like...

Rules of Discussion on Weak Yen Validates $150 Ceiling for Nikkei 225: Chart

1. This forum is for discussion of financial markets. Please respect others view even if they are contrary to you.
2. Member's comments should lead to value addition in forum discussion.
3. If anyone is found making repetitive Explicit/Abusive/Racial comments, his account shall be banned and old posts will be deleted.
4. Providing Advice/Recommendations/Tips is fine but it should be free. Members cannot ask to be paid for it. Paid Advice is stricly prohibited
5. Spam links are not allowed. Too much promotion or using Contact info in ID will lead to account ban.
IMP : Memebrs are requeuested to flag any violations to keep Forum Clean