The Bank of Japan makes big move in coronavirus fight with $6 billion plan

December 16, 2020 13:30

The country of the rising sun continues to take new steps in their fight against coronavirus through a $6 billion plan announced by the Bank of Japan. This comes hot off the heels of last week’s move by the Japanese government when it announced an extraordinary stimulus plan of 3 billion euros to try to reactivate the domestic economy, 80% of which would be used to promote national tourism. 

While the Bank of Japan is expected to announce an extension of the current aid program for companies due to the current instability, for the moment it has taken the measure of reinforcing its financing in dollars with an emergency program that amounts to 6 billion dollars in which the Bank of Japan will buy dollars directly from the Ministry of Finance for the first time.

This move tries to prevent future dollar financing problems, giving flexibility to deal with any type of dollar shortage.

Recently, we have come to learn of new estimates in relation to the Japanese economy:

  • GDP is expected to contract by 5.3% this year, a contraction lower than initially expected
  • This improvement is mainly due to the good data from the quarterly GDP from July to September
  • Year-on-year growth in the third quarter was  22.9%.

If we focus on the Japanese Nikkei, we can see how this year it has experienced a strong rise after the falls caused by COVID at the beginning of the pandemic. It has surpassed the highs of 2019 to exceed 26,770 points (levels not seen since the 90s) from an area close to 16,000 points reached in mid-March.

Technically speaking, the uptrend seems strong, despite the prolonged overbought mode that we have observed in the stochastic indicator since the beginning of last November and the decline of the MACD indicator in positive territory.

After the last strong bullish momentum of last November, during this month of December, we are experiencing a lateral consolidation process between its green resistance and its 18-session moving average, in which the price is supporting, acting as its first support level.

It hasn’t yet been ruled out that the price may undergo a correction due to the current overbought mode, but as long as it doesn’t lose its main support levels in the zone coinciding with the highs of 2019 and the uptrend line, we shouldn’t expect a change in trend in the long term.

Source: Admiral Markets MetaTrader 5, JP225 daily chart. Data range: from September 6, 2019, to December 16, 2020. Prepared on December 16, 2020, at 11:00 am CET. Keep in mind that past returns do not guarantee future returns.

In 2015, the Nikkei rose by 9.07%, in 2016, it increased by 0.42%, in 2017, it increased by 19.10%, in 2018, it fell by 12.08%, and in 2019, it increased by 18.20%. That is, in five years it rose 35.56%.


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