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Japanese equities are pausing after a strong rally, with investors turning cautious ahead of central bank signals and geopolitical developments that could set the tone for market moves.
Investor caution weighs on Tokyo markets
The Nikkei 225 retreated on Tuesday after recently setting fresh record highs, as investors shifted to profit-taking ahead of major economic and geopolitical developments. The broader Topix index also edged lower by 0.1% to 3,118, reflecting a more cautious market mood.
Attention remains on US President Donald Trump’s calls for Russia-Ukraine peace talks, urging President Putin to prepare for a potential summit with Volodymyr Zelenskiy.
At the same time, traders are awaiting Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole symposium later this week, hoping for clarity on the Fed’s policy outlook after a run of mixed inflation and labour market data.
In corporate moves, SoftBank slipped 2% after reports suggested it is considering a $2 billion investment in US chipmaker Intel.
Other notable decliners included Sanrio (-6.5%), Fujikura (-3.2%), and Mitsubishi UFJ (-2%), all of which added to the downward pressure on sentiment.
Technical analysis
The Nikkei 225 has extended its strong rebound from the April low of 30,397, climbing as high as 43,606 before pausing.
The long-term outlook remains bullish, with prices trading well above both short- and medium-term moving averages, underlining continued buying momentum.
Picture: Nikkei 225 trades near 43,606, showing a gradual recovery from April lows with momentum supported above key moving averages, shown on the VT Markets app.
The MACD indicator stays in positive territory, signalling underlying strength, though the flattening histogram suggests that upward momentum may be slowing in the near term.
Immediate resistance is seen at 43,600–43,800, an area where recent highs have capped gains. A decisive break above this range could open the way to 44,500.
On the downside, initial support stands at 42,500, followed by stronger levels around 39,800. As long as the index holds above its rising 30-day moving average, the broader bullish structure remains intact, though short-term pullbacks remain likely after the extended rally.
Cautious forecast
Looking ahead, the market’s direction will largely depend on central bank messaging and geopolitical progress.
Should Powell deliver a dovish tone at Jackson Hole, Japanese equities could quickly regain momentum, with the Nikkei retesting recent highs and potentially breaking back above 44,000.
A softer policy stance would reassure investors that the Fed remains supportive of economic growth, bolstering risk sentiment in global equities.
On the other hand, a hawkish message that prioritises inflation control could dampen appetite for risk assets, prompting further profit-taking.
In addition, uncertainty surrounding Russia-Ukraine talks poses another layer of potential volatility, with investors closely watching whether negotiations materialise or stall.
In such a scenario, the Nikkei could extend its correction, with downside risks initially at 42,500 and, if sentiment weakens further, around 41,500.
Overall, while the broader trend remains constructive, traders may prefer a cautious, flexible approach as global developments continue to shape the outlook.
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