Nikkei rises as yen weakens

The unexpected rate cut the Bank of Japan performed in late January did stir up some volatility among yen currency pairs and the Japanese economic climate, but its long-term effects are just starting to be seen. The market is gearing up for what is dubbed as “the best long trade of the year” at the moment, going long on USD/JPY to benefit from both the Yen decline and the interest rate difference. The main winner of this trade seems to be the Nikkei, which is picking up some wins in recent days.

On Thursday, Japanese stocks rose a little higher based on the Yen’s 2nd consecutive losing day against the U.S. Dollar. The Nikkei share average gained a good 1, 4%, lifting the index to a level of 16,140. The recent bounce in oil prices also greatly helped the Nikkei, which now seems two of its biggest problems heading towards solving: low oil prices and powerful Yen. If both these big impactors in the Japanese economy go as expected, investing in Japanese stocks could be a great idea.

Higher shares automatically led to a slight relaxation of the main exporters of Japan, such as Sony or Honda. Market sentiment also seems to be a little better, with the level of trust in the Bank of Japan’s actions growing steadily as the country’s economy heads for the better. The Nikkei 400 index also rose 1, 9%, showing that the top companies of Japan are benefiting from the weakened Yen even more than middle and small-sized ones.

All in all, Japan is one of the first economics that seem to have a clear direction in 2016. The Bank of Japan is clearly set to end deflation and arrive at their targeted 2% inflation as soon as possible, so they will do everything in their power to ensure a weak Yen and positive stock market. What can investors do to profit from these ideas? Long USD/JPY, long the Nikkei, and hope for the best in oil developments. Good luck with your trading!

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