Nikkei 225 Slightly Lower On Global Caution

A US retreat maintained a more cautious tone in Japanese stocks, although solid domestic spending data provided relief and the dollar avoided further selling, which curbed potential Nikkei selling.

US equity markets dipped weaker on Monday with a modest correction following the strong gains seen last week in thin liquidity conditions as lower energy prices also curbed market support.

The dollar overall remained in a consolidation phase around the 112.00 level against the yen in choppy trading conditions. A slightly weaker US currency tone was important in curbing potential gains in Japanese equities, although there was solid US buying on dips, which limited the potential for more substantial selling pressure on the Nikkei index.

Oil prices edged slightly lower during the Asian session, although prices held above Monday’s lows as uncertainty surrounding this week’s OPEC meeting continued.

The Japanese retail sales data was stronger than expected with an annual 0.1% decline in the year to October from a 1.7% decline recorded the previous month. There was also a moderation in the household spending decline to 0.4% from 2.1% previously, which triggered some optimism surrounding the underlying spending trends. Unemployment held at 3.0% for the month with solid labour-market data.

The Nikkei index opened lower after the Wall Street losses, although overall selling pressure was contained and the index rallied during the morning session with relatively narrow ranges although it held in negative territory. There were further relatively narrow trading ranges during the afternoon session as uncertainty on multiple fronts prevailed.

At the close, there was a decline of 49.85 points and 0.27% at 18,307.04.

Dollar trends will continue to have an important impact in the short term and the Nikkei index will be vulnerable to selling pressure if the US currency is subjected to a more substantial retreat. In this context, the US data releases will be watched closely during the day.

Tim is a contributing author to He is an economist and has been involved in financial markets for over 20 years as an analyst. He specialises in global economic trends, macro policy and central banks. Extensive knowledge, experience and data mining is used to anticipate trends in equities, bonds and forex with a contrarian slant. He is a graduate of the University of York with a degree in Economics/Econometrics.