Nikkei 225 Index Dips Below Support, Dollar Weakness Undermines Sentiment

The Nikkei 225 index lost ground on Friday with dollar weakness on political and economic grounds the main negative factor for Japanese equities as the index dipped to below 20,000.

During the New York session, there were reports of US special counsel Mueller forming a grand jury to investigate Russian involvement in the 2016 US Presidential election which increased speculation that there could be criminal charges.

US equities came under significant selling pressure on the reports and, although there was a recovery late in the session, the S&P 500 index declined just over 0.2% on the day even though the Dow industrial index advanced for the 7th successive session.

The US currency also came under pressure following the reports having retreated earlier after the weaker than expected ISM non-manufacturing data.

USD/JPY dipped to below the 110.00 level for the first time in 7 weeks and the weaker US currency undermined support for Japanese stocks.

The domestic wages data was much weaker than expected with a year-on-year decline of 0.4% in wages for June following a 0.6% advance the previous month with earnings hit by weaker bonuses.

The data maintained expectations that the Bank of Japan would pursue a very expansionary monetary policy which provided some underlying support to equities.

There was market caution ahead of Friday’s US employment report with fears that a disappointing release would trigger a fresh round of dollar selling.

The Nikkei index opened significantly lower and a morning rally was unable to regain the 20,000 level which dampened confidence and prices edged lower following the session break.

At the close, the Nikkei 225 index declined 76.93 points and 0.38% at 19,952.33.

Reaction to the US employment report will be very important for Japanese stocks on Monday with US political developments also watched very closely.

Nikkei 225 Index 4-Hour Chart

nikkei04-08-17

Tim is a contributing author to EconomicCalendar.com. 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.