Jun 20, 2023

A recent surge through resistance for the Japanese Nikkei index could lead to profit-taking in Japanese shares.

JP225: Weekly Chart

JPN225: Weekly Chart

The JP225 soared through resistance at the 30,720 level. The index may now retreat to test that level before making any further advance.

Chip-related stocks were seen boosting the price of the Nikkei last week, with Advantest and Tokyo Electron rising. Screen Holdings and Nikon were also gainers.

The JP225 index soared to its highest level since March 1990 and is up nearly 9% for the month of June, marking the largest gain for the index since November 2020.

“Today’s move suggested that investors took a pause in active buying. But the outlook remains positive, as foreigners are still buying. The Nikkei could rise further after this recess,” said Kentaro Hayashi, senior strategist at Daiwa Securities.

Foreign investors were net buyers of Japanese stocks for the 11th consecutive week, buying up 1.3 trillion yen ($9.22 billion) in the week ended June 10. That was more than double the previous week’s number, according to data from the Ministry of Finance.

One of those buyers was the USA’s most famous investor, Warren Buffett, who added to his stakes in Japanese trading houses. His Berkshire conglomerate said that its stakes in Itochu (ITOCF), Marubeni (MARUY), Mitsubishi Corp., Mitsui & Co. (MITSY), and Sumitomo are now averaging more than 8.5%.

The billionaire’s firm first announced an interest in the Japanese market in 2020. Buffett’s investments and his optimism about the country’s economy have boosted overseas investment in Japanese stocks.

“The tailwinds for Japanese equities continue to multiply,” said analyst Charu Chanana. “While it was previously hinted that Berkshire will increase its stake… “The announcement has come somewhat sooner than expected and will further boost optimism in Japanese stocks.”

Investors should look for the Nikkei index to retreat back to the breakout level before deciding whether to buy.

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