Japan’s Nikkei index surged by 2.43% upon reopening after a long weekend, logging the largest single day gain in 11 months. Conventional wisdom might suggest that heightened geopolitical tensions typically dampen investor sentiment. However, the dynamics observed in the Japanese market unfold a contrasting narrative.
The ascendancy in Nikkei is attributed, in part, to significant gains witnessed in the oil sector. Oil explorer Inpex saw an impressive 8.6% spike, while Japan Petroleum Exploration soared by 10.7%. These gains align with the rally in oil prices globally, stimulated by the escalating conflict in the Middle East.
The unexpected positive response of Japanese stocks to the geopolitical unrest has fueled a debate among market observers. Some argue that the intensifying situation in the Middle East might lead to reconsideration on Fed’s policy path. There’s a burgeoning perspective that Fed might hold off on further rate hikes, given the potential economic uncertainties injected by the conflict.
Technically, today’s rebound in Nikkei argues that corrective pattern from 33772.89 (Jun high), could have completed with three waves down to 30487.67. That came after drawing support from 38.2% retracement of 25661.89 to 33772.89 at 30674.48. Next focus is 55 D EMA (now at 32149.24) Sustained trading above there will solidify this bullish case and target retesting 33772.89 high.