Japan’s market outlook after the US presidential election

In the weeks running up to and during the US presidential election, markets were stoked with excitement but it is a different story for Japan as the country saw its financial markets thrown into chaos after Republican candidate Donald Trump won the US presidential race.

Investors panicked on the outcome of the vote on amid pre-vote predictions that Democratic candidate Hilary Clinton would win the presidency.

The market is always unpredictable and it may go against the macro judgment.

The Nikkei 225 index slumped 5.36 per cent on Wednesday, ended down by 919.84 points at 16,251.54 due to heavy selling following an unexpected victory by Trump.

As early projections showed stronger than expected performance for Trump, there was a sharp switch in market sentiment once Trump won key states such as Florida.

Besides that, the dollar-yen pair declined sharply to below 101.50 at one point before it rebound back to nearly 113.

There is an inverse relationship between the yen and Nikkei 225.

The yen appreciates to the level of 101.50 against the US dollar, Nikkei 225 dropped more than 600 points.

There is a point where the index dropped by 1,000 points.

After Trump’s victory, the US dollar went into a bullish momentum as investors resumed buying back the greenback on expectations that US will hike its interest rate sooner or later in December.

We can see that the Nikkei 225 has climbed back above 18,000 level from its lowest level of below 16,500.

The rising in stocks market has severely diminished the appeal of safe-haven assets like the yen and gold.

A weaker yen has buoyed exporters while Japanese lenders have benefited from a rebound in global borrowing costs.

While the Bank of Japan (BoJ) seems to be running out of ammunition, Prime Minister of Japan Shinzo Abe will seek to persuade private companies in Japan to boost wages and urge his government to unveil an expansionary budget in 2017 in an attempt to jump-start the growth in Japan.

Japan’s industrial output rose slightly in October for the third consecutive month, preliminary government data showed on Wednesday, a sign of a tentative pickup in factory activities.

BoJ’s Governor Haruhiko Kuroda has maintained his optimistic view of the economy saying it was on track for a moderate expansion as exports and output rebounded.

On the technical front, we expect the Nikkei 225 to remain mildly bullish with immediate support at 18,100 and resistance at 18,700.

Last but not least, BoJ monetary policy meeting in December is another key event that traders should look into the impact of the meeting’s results to the Japan market.