Japanese Yield Surged to Record High 3.2% - Nikkei OutlookNikkei (USD) FuturesCME_DL:NKD1!konhowAre Japanese markets still a buy after rising 170% since the pandemic, surpassing their roaring 1980s levels? The reason why Japanese stocks have become some of the best-performing equities in Asia is largely due to the falling yen — a depreciation of around 60%. A weaker yen boosts Japan’s major exporters (like Toyota, Sony, and Panasonic), as their overseas earnings convert into higher yen profits. But what’s the downside? - Inflation Yes, they wanted inflation, below 2% yoy will be ideal, but not at this rate of growth at 3.5%. Another key reason for the stock rally starting in 2020 was that, just like the U.S., the Bank of Japan (BOJ) unleashed massive monetary stimulus, flooding markets with liquidity during the pandemic. Although the yen has fallen sharply, it seems to have stalled since 2024, that was when the BOJ started raising interest rates from –0.1% to the current +0.5%. With inflation continuing to rise, the BOJ will likely maintain a hawkish stance on interest rates. This could cause the yen to strengthen or push USD/JPY lower. I am also observing a potential head and shoulders formation on the USD/JPY. And if the yen strengthens, this may cause the Japanese stocks to meet its road block. Nikkei 225 performance since the post WWII to its roaring 80s, to its collapsed, and now rebounded. Even though prices have breached the 80s level in 2023, it could represent a false breakout, as prices continue to fall back below that historic resistance the last 2 years. My assessment: The Japanese stocks are still testing their 80s high — a major psychological level. With money printing, the yen weakened; and a weaker currency fueled inflation. With inflation, yields and interest rates rise, borrowing costs are increasing across the different tenures — and that’s not good news for stocks. The 30-year yield is now at around 3% — a level surpassing the deflationary years and that’s something most Japanese would not have imagined just a few years ago. With a raising interest rate and a stronger yen, let’s see how this will impact the Nikkei 225. Since the BOJ began raising interest rates at the beginning of 2024, the market has literally stalled within a wide 10,000-point range. And there is a key support level at 30,000, we can see it was a resistance in the past. Currently, the BOJ is trying their best in managing the yen and inflation very carefully, to maintain financial system stability. Based on this sentiment, I believe the market will likely continue moving within this wide range — though it may gradually narrow over time. Make sure to keep monitoring the direction of the Japanese yen, yields, and inflation. If the yen strengthens too quickly, or if yields and inflation rise too sharply, it could push the market to break below this range and start trending downward. And if it is all well, market will likely to continue its upward momentum. Another key factor I am watching closely is tariffs. The direction of the Japanese stock markets will also be influence by the tariff agreements ultimately with US, and as well as how quickly they can forge potential trading partnerships and alliances — just like other nations, they are racing against time. Micro Nikkei Futures Ticker: MNI Minimum fluctuation: 5.00 index points = ¥250 Disclaimer: • What presented here is not a recommendation, please consult your licensed broker. • Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises. CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs https://www.tradingview.com/cme/ Trading the Micro: https://www.cmegroup.com/markets/microsuite.html https://www.cmegroup.com/markets/equities/spot-quoted-futures.html