Nikkei Crashes

The Nikkei has come under heavy selling pressure this week with the market collapsing almost 9% as of writing. The sell-off has been exacerbated by the latest round of US inflation data this week which, coming in well above forecasts, has stoke fears that the Fed will need to remove easing ahead of schedule this year. Indeed, this week’s sell-off comes despite BOJ governor Kuroda cautioning that the BOJ stands ready to buy ETFs in any amount necessary to stem the decline.

Kuroda Says BOJ To Buy ETF's As Needed

Speaking overnight, the BOJ head reassured markets that the central bank is ready to purchases ETFs “boldly”, as necessary though stopped short of saying exactly when the bank would intervene. On this matter, Kuroda explained: "We don't have any automatic, set rule in buying ETFs, such as doing so when stock prices fall by a certain amount in several days." Though again Kuroda was quick to sound reassuring, saying: "There's absolutely no change to our stance of buying ETFs boldly when necessary."

The BOJ recently announced that it would no longer be targeting a set quota of ETF purchases, in a move which was deemed by many as designed to afford the bank space to scale out of easing without making any announcements. The move was also seen to be largely a response to the criticism aimed at the bank over its ETF purchases, namely that it had distorted the market. Since the BOJ announced its strategy shift it has on made 4 day’s worth of purchases, 3 in March and 1 in April, with none so far at all in May. Traders are now watching to see if the bank will step in as the Nikkei craters towards the 2021 lows.

Uncertainty & Risks Remain

Kuroda was also seen commenting on the Japanese economy, telling reporters that "Economic activity will remain below pre-pandemic levels for the time being." Kuroda cited the ongoing uncertainty and downside risks in the outlook as the country continues to battle the latest outbreak of COVID in a third national state of emergency. Looking ahead, Kuroda said: "We'll take into account the effects and cost of our policy, and aim to achieve moderate inflation accompanied by growth in corporate profits, jobs and wages."

Technical Views

Nikkei

The sell-off in the Nikkei this week has seen price blowing through the rising channel support and the 28372.5 level. Price is now also moving through the 27701.1 lows and is fast approaching the next big support at 26949.5. While price holds below the 28372.5 level, the outlook is skewed towards further downside.

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