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Investor caution is building in Japan as markets await the Bank of Japan’s policy decision amid ongoing global trade tensions. With inflation expectations in focus and export risks still in play, traders are holding back, keeping the market in a narrow, uncertain range.
Markets mixed as Bank of Japan decision nears
Japanese equities closed Wednesday’s session on a mixed note, with investors taking a cautious stance ahead of the Bank of Japan’s (BOJ) upcoming monetary policy announcement.
The Nikkei 225 edged down by 0.05%, settling at 40,625.15, while the broader Topix Index rose 0.4% to 2,920, supported by gains in the banking and energy sectors.
Market uncertainty centred around Thursday’s BOJ policy meeting. Although most analysts anticipate no change in interest rates, traders are closely monitoring for any upward revisions in the central bank’s inflation forecasts.
Persistent inflationary pressures, particularly in food and services, could push the BOJ closer to tightening policy later in the year. However, policymakers remain wary of potential global trade disruptions.
Adding to the cautious sentiment, U.S. Commerce Secretary Howard Lutnick confirmed that the 1 August tariff deadline will remain in effect for nations lacking formal trade agreements.
While an extension of the trade truce between the United States and China appears likely, no official deal has been announced. As a major export-driven economy, Japan remains vulnerable to volatility in global manufacturing and supply chains.
Technical analysis: Nikkei 225 struggles for direction
The Nikkei 225 index showed little directional commitment, retracing an intraday surge that briefly touched 40,962.15.
The index now fluctuates around its 5-, 10-, and 30-period moving averages, all of which are starting to flatten – a classic sign of market indecision or the onset of a consolidation phase.
Momentum indicators also reflect the current uncertainty. The MACD histogram continues to alternate weakly between positive and negative territory, with the signal line hovering near the zero level, offering no clear trend signal.
Picture: Nikkei 225 holds range as bulls and bears tug for direction, as seen on the VT Markets app.
With Japan’s corporate earnings season ongoing and the BOJ likely to maintain its accommodative monetary policy stance, equity investors are hesitant to take strong positions.
In the near term, the Nikkei 225 may remain range-bound between 40,550 and 40,950. A decisive breakout above the 41,000 mark could signal bullish continuation, while a drop below 40,540 may prompt a shift in sentiment towards the downside.
Market outlook: Cautious sentiment prevails
Investor sentiment remains tentative as markets await clarity from the Bank of Japan. Should the BOJ adopt a more hawkish tone or sharply upgrade its inflation projections, Japanese equities – particularly the Nikkei 225 – could face renewed selling pressure.
A strengthening yen in response to tighter policy expectations would likely add to that downward momentum, especially in export-heavy sectors.
Technically, the index is hovering near key support levels. A confirmed drop below the 40,560 zone could trigger a deeper correction, potentially targeting the 40,400 area in the short term.
This would reflect a loss of near-term confidence and might invite further selling from momentum-driven traders.
On the upside, sustained bullish sentiment would need a clear break above 40,800, ideally accompanied by strong earnings reports, improved global risk appetite, or dovish cues from the BOJ.
Until such catalysts emerge, sideways movement within the current range remains the most likely scenario.
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