The Nikkei 225 and Topix indices have wavered close to their all-time highs as volatility in the stock market rises.
Nikkei ended last week at 69,360, down from the year-to-date high of 72,780, while Topix fell from 4,105 to 3,963. This article explores the top catalysts for Japan stocks this week.
Potential BoJ intervention on the falling Japanese yen
The Japanese yen has remained under pressure in the past few months and is now hovering at its lowest level in decades. The USD/JPY pair rose to 161.75, up by 6.35% from its lowest level this year.
Therefore, the continued yen weakness means that the BoJ may be under pressure to intervene as it has always targeted 160 as the key level.
In April, the bank intervened through a $73 billion package. It has also hiked interest rates to 1%, the highest level in two decades.
Therefore, it is unclear what other tools the bank has in its interventions.
One of them would be to coordinate with the Federal Reserve, which will be difficult ahead of the US midterm elections.
AI supercycle developments
The other key catalyst for the Nikkei 225 Index will be any developments in the AI industry.
This is crucial, as we saw last week. On Monday, AI stocks plunged, with Kioxia, SoftBank, Tokyo Electron, and Advantest all falling.
They all bounced back on Thursday as investors cheered the strong Micron earnings, and then retreated sharply on Friday as investors reacted to Apple’s decision to hike prices of its MacBooks amid the ongoing memory shortage.
Unlike last week, there is no major AI company publishing its earnings this week. Nonetheless, there is a likelihood that key AI developments will move the Nikkei 225 Index this week. For example, there is a risk that investors will dump AI stocks amid valuation and AI bubble fears.
Key Japan and US macro data
The Nikkei 225 and Topix indices will also react to some important macro data from the US and Japan. In Japan, the key data to watch will come out on Wednesday when the BoJ publishes the Tankan survey data. These are important numbers that show the health of the Japanese economy in the previous quarter.
Japan will also publish the latest unemployment and industrial production data on Tuesday. All these are important numbers that will provide more color on the health of the Japanese economy. They will also help the BoJ when delivering its next interest rate decision.
The Nikkei 225 Index will also react to the latest US non-farm payrolls data on Friday. Economists expect the data to show that the economy added over 114k jobs this month.
These are important numbers because they will impact the next Federal Reserve action. Strong numbers will boost the odds that the Federal Reserve will hike interest rates later this year, widening the interest rate spreads with the BoJ. Such a move will lead to more pressure on the Japanese yen.
US and Iran ceasefire risks
Developments involving the US and Iran will also have an impact on Japanese stocks. The two countries exchanged fire during the weekend, putting the ceasefire at risk.
If this happens, chances are that crude oil will continue rising, reviving the inflation risks. It will also have an impact on the Japanese economy as the country imports millions of barrels per day from the Middle East.
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