8/30/2020 Japanese PM Abe Resigns - JPY and Nikkei 225 Rattled

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Japanese PM Abe Resigns - JPY and Nikkei 225 Rattled

Aug 28, 2020 2:12 PM +05:30
Warren Venketas, Markets Writer

Japanese PM Abe Resignation, USD/JPY and Nikkei Analysis:

USD/JPY slips after resignation and eyes 105.000
Japanese stocks fall with near term momentum indicative of further downside
Japan and UK trade talks may be impacted
IG Client Sentiment (IGCS) supportive of bearish bias
This article incorporates price action to help spot that potential for capitulation. To learn
more about price action, check out our DailyFX Education section

Japanese Prime Minister Shinzo Abe has resigned from his post due to health concerns. This
has been brewing over the past few days but now has nally been con rmed. With almost 8
consecutive years of service Abe has been at the forefront of numerous policies, economic
reform and much more for the island nation. Japan being an economic super power makes this
news quite signi cant globally, and may well result in systemic ripples throughout nancial
markets. Today saw the Japanese Yen (JPY) and Nikkei 225 react quite signi cantly to the news
which may extend further as there is still uncertainty around a successor and how this may
affect current economic policies. How will the future pan out for the Japanese economy?

TECHNICAL ANALYSIS
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USD/JPY WEEKLY CHART:

Chart prepared by Warren Venketas, IG

The US Dollar has given back much of its gains against the Yen after yesterday’s speech by Fed
chair Jerome Powell at the Jackson Hole Symposium. The multi-year descending triangle is still
in play as price action continues its path to support. The news of PM Abe’s resignation may
result in further downside pressure as uncertainty prevails. Technically traders will look for the
psychological level of 105.00 (yellow) as initial support after which the July 103.55 low may
follow.

NIKKEI 225 DAILY CHART:

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8/30/2020 Japanese PM Abe Resigns - JPY and Nikkei 225 Rattled

Chart prepared by Warren Venketas, IG

The Nikkei 225 reacted with a sharp sell-off in Japanese stocks. With volumes reaching new
highs (yellow) as of June 2020, the near term upward trend has been disrupted. Stocks have
given back much of its initial decline however, traders should proceed with caution as doubt
around the future of Japan endures. Further downside may be eminent as the 22241.9 (23.6%
Fibonacci) looms as initial support – Fibonacci taken from February 2016 low to October 2018
high. The 100-day Moving Average (MA) coincides with this level and support a break below this
support zone may signal a bearish reversal. This potential reversal in momentum may be
imminent but after a strong upward move since March 2020 lows, it may not be wise to be too
decisive in judgment as the Japanese government will need to provide more clarity on the
situation.

JAPAN AND UK TRADE DEAL

Japan and the UK have been in trade talks which are forecasted to conclude in September. This
is a favorable deal for Japan as they are a major exporter to the UK and could allow Japan to
avoid tariff increases on their goods. With Prime Minister Abe resigning, this may affect the deal
with delays or even abandon the pact all together depending on what happens going forward. If
the deal is aborted, Japan will see tariffs rise next year which could severely hurt Japanese
exporters. Yen and Nikkei traders should keep a close eye on these negotiations as this may have
substantial consequences for the country.

JPY AND NIKKEI 225: STRATEGY MOVING FORWARD

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agree will
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of on Japan’s succession plan which will be the a main market driver going forward.
cookies.
Consensus amongst
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continuation of Abe’s current policies. Expansionary scal and monetary policy will persevere as
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the underlying foundation of Japanese policy as there is no real alternative to ‘Abenomics
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8/30/2020 Japanese PM Abe Resigns - JPY and Nikkei 225 Rattled

(weaker Yen with a strong stock market). Short-term downside we have seen on both the Nikkei
225 and USD/JPY may be short lived with further upside to ensue in the medium-term. A
deviation from this – however unlikely, may cause a real stir in global markets.

Key points to consider:

Nikkei 225: 22241.9 23.6% Fibonacci level

USD/JPY: 105.00 psychological level
Japan and UK trade deal negotiations
Succession plan for Japan

IG CLIENT SENTIMENT DATA POINTS TO A SHORT-TERM SHIFT IN MOMENTUM

TO THE DOWNSIDE

USD/JPY BEARISH Data provided by

--% --%

CHANGE IN LONGS SHORTS OI

DAILY 30% -12% 12%

WEEKLY 8% -13% 0%

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IGCS shows retail traders are currently net long on USD/JPY, with 58% of traders currently
holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd
sentiment, and the fact traders are net-long is suggestive of a bearish bias on the pair.

--- Written by Warren Venketas for DailyFX.com

Contact and follow Warren on Twitter: @WVenketas

DailyFX provides forex news and technical analysis on the trends that in uence the global currency markets.

DISCLOSURES

Warren Venketas
Markets Writer

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R AT E S

USD/JPY 0.00% 105.350

BEARISH 105.389

Japan 225 +0.22% 22924.5

22954.5

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