Overall risk conditions held firm on Monday and the dollar also recovered from the lowest levels seen on Friday which lessened the risk of selling pressure on Japanese stocks.
There were further losses in the Nasdaq index on Friday and the US economic data was weaker than expected, although the S&P 500 index held firm with a marginal gain on the day which limited any negative impact on risk conditions.
USD/JPY declined from its best levels with a retreat to below the 111.00 level, although overall selling pressure was limited which limited the potential negative impact on equity markets.
Japan’s headline trade account moved into deficit for May and the adjusted surplus was lower than expected at JPY0.13trn from JPY0.16trn the previous month, although export growth held firm with the strongest annual growth rate for 2 years at close to 15% which prevented any dip in risk conditions. Strong export growth was also important in supporting sentiment surrounding key Japanese exporters.
Asian markets overall gained significant support on Monday with an easing of liquidity conditions in China helping to underpin the Shanghai index.
Overall risk appetite held steady on the day with a lack of significant support for defensive assets which lessened the risk of selling pressure on Japanese assets.
The Nikkei 225 index opened higher and the market extended gains early in Monday’s session with a break above the 20,000 level. There was no extension of gains ahead of the session break and equities trading in narrow ranges after the break with consolidation the main focus.
The ability to hold above the 20,000 level continued to provide net support to sentiment and, at the close, there was a gain of 124.49 points and 0.62% at 20,067.75.
US equity-market trends will continue to be an important focus in the short term with comments from Federal Reserve officials also watched closely given the potential dollar impact.
Nikkei 225 Index 4-Hour Chart