Insights 
VT 
Key Points
- Nikkei 225 ends 0.55% higher at 39,678.02
- Semiconductor and data center stocks rally after Nvidia news
- Domestic political uncertainty and U.S. CPI data keep traders cautious
- Short-term technicals suggest momentum toward the 40,000 mark
Japan’s Nikkei 225 climbed on Tuesday, closing 0.55% higher at 39,678.02, as renewed optimism in the semiconductor space lifted Tokyo equities. The gains came despite early hesitation from traders still digesting political risk at home and awaiting critical inflation data from the U.S.
Much of the session’s strength stemmed from Nvidia’s announcement that it will resume sales of its H20 AI chips to China, a move seen as a positive signal for Japan’s tech-heavy index
Caution Persists Ahead of Key Data and Domestic Elections
Despite the rally, broader participation was tepid. The Topix managed just a 0.09% gain, and traders remain wary of both global and domestic uncertainties.
All eyes are now on the U.S. Consumer Price Index (CPI) data due later today, which could alter global rate expectations. A softer print may spark a global risk rally, while a surprise to the upside could weigh heavily on equities.
Domestically, Japan faces a critical upper house election on July 20, where Prime Minister Kishida’s Liberal Democratic Party and its partner Komeito risk losing influence. A defeat could empower opposition factions pushing for sales tax cuts, introducing policy volatility at a time when stability is crucial.
Among the few losers on the Nikkei, Daikin Industries slipped 2.6%, becoming the session’s biggest drag as some traders rotated out of defensive names.
Technical Analysis
The Nikkei 225 has broken out above a short-term consolidation zone around 39,580, pushing into fresh intraday highs at 39,645.65. The moving averages (5, 10, 30) are in clean bullish alignment, indicating healthy short-term momentum, and the price is currently riding the upper band of this breakout. A new bullish MACD crossover adds confirmation, with histogram bars expanding and suggesting sustained upside interest.
Picture: Nikkei surges past key resistance at 39,580 as yen weakness, as seen on the VT Markets app
If the breakout holds, the index could extend toward 39,750 and possibly retest the psychological 39,900 zone next. However, a return below 39,580 may signal a false breakout, exposing the index to a correction toward 39,420 support.
This rally comes as Japanese tech stocks rebound, the yen weakens beyond 158 against the dollar, and the BOJ signals no change to its dovish stance. Global sentiment is also aiding risk assets after Powell hinted the Fed may ease policy by September, fueling appetite for equities. Japan’s earnings season kicks off this week, which could inject volatility and provide further directional cues for the Nikkei.
If the broader index begins to reflect the strength of its semiconductor leaders, bulls may have the firepower needed to push through the next psychological threshold.
