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🔥 Frenzied Nikkei or save the yen
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The Nikkei 225 stock index of Japan's largest companies broke an all-time high and closed above 39,000 points for the first time. The previous record had stood for almost 35 years – since the asset bubble in the late 1980s.
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A powerful rally since the beginning of the year (+17.5%) was provided by shares of chip-related companies. The latest upward spurt was clearly driven by strong results from US chip maker Nvidia on Wednesday night.
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Money is also moving heavily into Japanese equities as investors are pulling out of China's markets due to a slowing economy and geopolitical tensions. The rise in business activity in Japan is also being driven by an influx of investment from domestic households taking advantage of a new government-subsidized savings scheme.
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What does this mean for the Japanese currency?
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A weaker yen attracts foreign investors. A weaker currency boosts the profits of export-oriented companies, which are heavily weighted in the composition of Japanese indices. According to the Tokyo Financial Exchange, the net number of retail positions focused on a weaker dollar against the yen has risen since Feb. 13.
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Japan is believed to account for about 30% of all retail currency trading globally. These private traders tend to take positions contrary to market moves. With the Nikkei225 and Topix indices active, Japanese retail players fear that currency devaluation will force the authorities to intervene in the market and are preparing for a downward reversal in USD/JPY.
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The yen recovery will trigger a natural desire to buy dollars at lower prices: individuals are eagerly buying the US currency at ¥145-147. So the new week may open at these levels.
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Profits to y’all!