EBC Markets Briefing | Nikkei reclaims 39,000 despite hopeless yen

Asian shares were subdued on Tuesday while the battered yen flirted with the 34-year low of 160 per dollar. Japan’s Nikkei 225 opened higher and touched 3,9000 – the first time since 11 June.

Record rally in the market earlier this year is looking like a distant memory as foreign investors sell off stocks in a sluggish economy. Citigroup Inc. and abrdn Plc are among firms that have turned more pessimistic.

A fund manager survey by BofA showed about a third of respondents believe the market has peaked as the outlook for corporate governance reform and the BOJ’s monetary policy remains uncertain.

The Nikkei cleared the 40,000 hurdle on late March before losing momentum. Citigroup warns the equities are facing “a material risk of correction,” and it could take a while before positive factors emerge.

The economy shrank at an annual rate of 1.8% in Q1, slightly better than the initial estimate. Adding to the dim outlook, a trade deficit of 1.22 trillion yen was logged in May as a weak yen pushed total imports higher.

But several strategists including those at BlackRock and Morgan Stanley remain positive on Japan’s long-term recovery, citing structural changes including corporate reforms, domestic investments and wage growth.

The Nikkei 225 seems neutral in the current level. The medium-term bullish bias remains with the index staying above its ascending line. A break above 39,450 is needed for an extended rally towards 40,000.

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