Nikkei 225: early week rally dies prematurely with the US inflation figure ahead

  • Japanese political strife putting Asia market risk appetite on ice.
  • Broad markets retracting ahead of the US CPI figures.

The Nikkei 225 index has stalled, trading back under 21,700.0 as markets hunker down in preparation for the US inflation figures dropping mid-Tuesday, at 12:30 GMT. A political thunderstrike is also sapping confidence in Asia markets as the Japanese land sale scandal comes more into focus.

Japan’s leading index kicked higher in Monday trading after Friday’s jobs report showed 313k new jobs in the American economy, but lagging real wages growth cooled off inflation fears while equities and bond yields still rose on the headline figure. The rally has ended quickly following fears that the Japanese government is fracturing following revelations that the Prime Minister, Shinzo Abe, and Finance Minister Taro Aso forged documents involved ina steeply-discounted government land sale to a school operator with ties to Abe’s wife. Calls are coming from the Japanese opposition party for Aso to step down and take full responsibility for the finance office’s hand in the debacle, but Aso has so far remained resolute in his decision to stay at his post, while the formal investigation pushes back planned government policy debates.

US inflation figures will be dropping at 12:30 GMT today, and the headline year-on-year CPI figure is expected to come in at 2.2%, a minor expansion over the previous reading of 2.1%. A beat in the numbers could see a fresh round of risk aversion plunging equities further down, even as global indexes continue to struggle to make further headway following January’s tumble that saw the Nikkei drop from a decades-long high of 24,200.0.

Nikkei Technicals

Daily candles show the index still steeply off 2018’s high point, and bullish pushes higher are being met with stiff resistance as swings in market sentiment centered around inflation continue to knock the top off risk-based assets. On the H4 charts, support is coming from the last swing low of 21,080.0 and March’s low of 20,700.0 with resistance close by at Monday’s high of 21,865.0 and February’s last swing high at 22,500.0.

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