Global DM Equities Face One Last Resistance: Nikkei 225 Record Highs (Part 1)
Japan's NKY index is now just 0.1% away from its 1989 bubble peak: the only all-time-high remaining in major DM equities. Part 1: How NKY & JPY are impacting US markets, BTC and more
Remember less than a month ago on January 25th when I said “short the living daylights out of the NKY?”
Neither do I.
No- I’m kidding (obviously).
Yes, I absolutely DID say AND DO that (I don’t know to what specific quantity of “living daylights” I had shorted upon the NKY… but nonetheless, yes - outright short NKY).
My market view was actually correct for the correct reasons into the end of Jan - start of Feb- as NKY’s relentless surge to double digit percentage gains within January had abruptly stopped, and NKY began to drift lower, letting SPX try to catch up. But a “stop going up” is not a “sharp crash.”
And as of this past week, I have now blown through all of my “short the living daylights out of NKY” layered stop losses above, 3 of which stopped out in a single session.
And that’s exactly what stops are there for. (Full/further commentary, explanation and reflection of “short living daylights out of NKY” trade at the bottom of this article)
The Nikkei 225 Index is now +15% "Year-To-Date" (in the first 6 weeks of ‘24), +4.5% of which occurred last week alone. And now, as of Friday’s cash close, the Nikkei 225 index is a tenth of a percent from breaking its New Years Eve 1989 record high close level of 38,915, when Bank of Japan hiked rates heading into a lost 90s. And lost 2000s. And lost.. every moment since then.
Mind you, this face-ripping NKY rocket is happening the same week in which Japan printed a second consecutive quarter of GDP decline and thereby now in recession, and also having ceded the title of 3rd largest economy to Germany.
Oh, right - and this rally to potentially break a new 34 year record high is also happening alongside consensus expectations for the Bank of Japan to lift interest rates in 2024.
So- did I just buy (to cover/exit short) NKY near its 3½ decade all time highs? You bet I did.
And will the New Years Eve 1989 Nikkei 225 market close level of 38,915 continue to maintain its status as the all-time-record high? Or might that figure finally be broken - and potentially in the immediate term?
Well, considering that this 3½ decade-high level is now just 0.1% away from Friday’s close after a month-and-half +15% surge in NKY, adding to a +40% 52-week run, I think it’s not too unreasonable to say that another +¥50 tick higher might be as imminent and inevitable as can be (perhaps even at next market open).
But I can also say that this very same +¥5,000 point NKY blast-off in the first 6-weeks of 2024 that is extending its massive +20% year-over-year outperformance vs S&P500 (which is also in the process of breaking its own new-record-high-setting rally again and again) - this type of NKY runaway upside momentum can also be exactly why foreign investors of Japan (who’s capital has driven this NKY upside) would be happy to take swift profit at a self-fulfilling ceiling, and if they do so, would be joining the Japanese domestic investors who have been net selling Japan equities for consecutive weeks. Perhaps some of whom have been waiting these 3½ decades just to get back to flat- but either way, Japan domestics would be even happier than the recent foreign longs to unload their Japan equity holdings at (or near) break-even, finally, in a mass “good riddance” liquidation at these bubble-era highs, resulting in an “escalator elevator up, jump off the roof down” crash the moment those levels are breached.
And lastly, I can also just as easily say- because it is the world’s only remaining multi-year (multi-decade) major DM equity market undergoing a generational record breaking resistance level (call it NKY ~40,000)- THAT in itself would therefore be where one directional market momentum slams into a concrete ceiling comprised of endless layers of limit sell orders that have been working GTC for the past quarter century+, and markets would go to battle at ~40k in a tightly rangebound manner for some time going forward (though obviously temporary), all the while building up ever more energy for a violent move to eventually break in either direction.
Either way, none of this is neither obvious nor clear - nobody has been here before to retest generational record highs set by a spectacular asset bubble in Japan. But the implications of these various scenario outcomes stretch far and wide.
“SPX > 5,000” - who cares? Seriously - what “happened” at SPX → 5k? Nothing. But NKY 40k? Yeah, that matters a hell of a lot more right now (and not just because of an easy relative comparison to “nothing”).
You didn’t have to pay attention to Japan equities for the last 3½ decades. You do now.
In this 2-part article, we will dive into this pivotal and generational moment for major global markets: the Nikkei 225 index on the verge of printing a new all-time-record high, and what it means for the broader global market landscape.
In the coming Part 2, will take a multifaceted view of the NKY 225: the bottom up constituents that have been driving the cash index higher from the single-stock perspective (and no, it’s not PURELY A.I. themed - it’s just merely overwhelmingly A.I. themed)
Also in Part 2, we will cover the top-down index perspective as well, with a focus on NKY index futures and options, drilling into the uniquely Japanese market phenomenon of “spot up, vol up”
We will look at global DM indices in relation to NKY, namely U.S. and China equity markets relative, and also explore intertwined cross-asset markets - namely FX and the yen impact (or, impact on the yen).
So, whether NKY 40,000 results in a massive and accelerated breakout move that dwarfs what has already occurred, or a spectacular blow-off-top market crash, or anything in between, there are potential far-reaching implications to global markets - not just Japan, nor just equities. And perhaps, not just markets - as a major volatile move in any direction may influence Bank of Japan (and thereby impact global central banks) policy if severe enough, especially during a pivotal and generational (and thereby fragile) policy moment for BOJ occurring in tandem.
But before we get into all the nitty gritty commentary and insights on market mechanics of the NKY Index itself, we need to first discuss why this is even worthy of discussion. So, this Part 1 will cover…
How you (those without direct Japan market exposure) are unknowingly being impacted by NKY→ 40,000 and USDJPY 150+
Here is the part where I fire off a few rounds of charts, facts, observations and explanations to illustrate why market participants across asset classes and regions, but especially those with vested interests in US equity markets now need to have NKY and JPY on your radar.
The fact is that for most of you, Japan markets have been impacting that which you DO have direct interests in, whether you realize it or not. Be it Mag 7 driven SPX or Bitcoin, Japan has been a factor, if not the primary driver of various non-Japan and/or even non-equities green and red blinking tickers.
SPX & Mag-7 Stocks
For my first article to kick off 2024, I didn’t address Bank of Japan policy or China or some other key topic that you might think I would have - and not because those things aren’t important (they obviously are).
But a far more pressing matter that was completely overlooked and in need of flagging to everyone ASAP was about the “New NISA” Japan Investment Account system that the government had revamped, effective Jan 2024.
“…The other reason for focusing on Japanese equity investors returning to markets is the launch of a revamped “New NISA” starting Jan 2024 - which is an investment account for Japan residents to invest tax-free up to a certain extended amount - and the potential for massive and sustained flows that may be unleashed into US equity markets, and which may even have implications on the yen…”
I was prioritizing this for two reasons/cohorts of people:
For DM equity market participants (especially the vast majority of U.S. based investors of U.S. equities living in their “American exceptionalism” + “Fed = everything” bubble) who simply have absolutely no clue what may be about to infiltrate them/“their” markets (SPX, USTs, and USD are absolutely not “U.S. asset classes” - they’re owned globally, and so they’re global asset markets, subject to global forces ex-America) - There is a massive source of long term, continuous and ever-growing flood of trillions in Japanese mattress cash that will be deployed into the top of the SPX constituents, as well as the index as a whole - the question isn’t “if,” its “how much, when, and at what rate.” And to the unaware, it would essentially act like a “hidden” QE faucet perpetually flooding the room, but can’t be identified and located, much less turned off.
For the domestic Japanese AND foreign investors of Japan who are already well aware of this potential liquidity flow game changer introduced, but who in my view have largely misread the investor base intentions and psychology by assuming that the New NISA revamp means Japan households flush with ever-worthless yen would be keeping their deteriorating mattress cash in Japan, and exchange it for JPY investment assets. For those people who are aware but are taking the wrong approach, I argued the following from my Jan 4th article: it is my strong view that yes, while cash savings would be deployed into financial markets, they aren’t going to be buying Japan stocks- rather, they’ll be fleeing the hell OUT of JPY and INTO overseas investments - namely Mag-7 stocks, and U.S. index ETFs. And if they do so rapidly and in size, that can even go so far as to impact the yen weaker (and then further perpetuate the flow).
Here’s an excerpt from my Jan 4th article on the matter:
II. New NISA Starting Jan. 2024 - Equity Markets Positive, but JPY Negative?
Also as just an FYI - Japan retail (and Japan institutional for that matter) seem to have an unbreakable bias towards favoring U.S. equities- and the 2023 Japan equity global outperformance showed how unconditional that “market is greener on the SPX side” domestic retail sentiment is- Japan domestics were net sellers into NKY and TOPIX surging to 3 decade highs, with some even saying things like “Berkshire drove up stock prices, but to sell it off to who? Us, the JAPANESE suckers! Long NKY??? No thanks.” …type of rhetoric (seriously, I can’t make that up if I tried). So, if/when Japan deploys bits and pieces of its trillions in mattress-cash into green and red blinking tickers, they unconditionally avoid home base, and go long US, be it Japan outperforming or getting killed…
…So- just wanted to show you what this potentially massive pool of capital has at their disposal under the new NISA - and why US equities and bonds look a hell of a lot more attractive than holding more than 50% of household assets in deteriorating JPY…
…The other reason for focusing on Japanese equity investors returning to markets is the launch of a revamped “New NISA” starting Jan 2024 - which is an investment account for Japan residents to invest tax-free up to a certain extended amount - and the potential for massive and sustained flows that may be unleashed into US equity markets, and which may even have implications on the yen…
That was what I was flagging on Jan 4th, 2024 - piece was literally titled: New NISA Starting Jan. 2024 - Equity Markets Positive, but JPY Negative?
Now, let’s fast forward from the start of January to current - and what do we have? Seems like we have pretty much exactly what I flagged above.
US equities are once again back to breaking new record highs. But who are the buyers? Many, but for one: Japanese investors. And indeed it turns out they have been buying a record amount of foreign (US) stocks since New NISA rolled out.
What’s more, they’re doing so at such a scale that their foreign equity buy flows are indeed actually having that potential currency impact - USDJPY is now back above 150 despite the near unanimous consensus view for JPY strength to kick off 2024.
A Bloomberg headline from last week:
“More funds are flowing overseas than expected,” said Hideki Shibata, a senior rates and currencies strategist at Tokai Tokyo Research Institute. “We expect this trend to have a significant impact on the foreign exchange market.”
Analysts at Japan’s biggest brokerage, Nomura Holdings Inc., estimate that the expansion of the nation’s tax-free system for individual investors, known as NISA, could drag on the currency to the tune of five yen per dollar in 2024. Strategists at Mitsubishi UFJ Morgan Stanley Securities said the changes likely reduced the value of the yen by one per dollar in January.
While forecasts compiled by Bloomberg show the currency should steadily appreciate through 2024, it has dropped about 6% versus the dollar since the start of the year. That’s when bets on near-term US interest-rate cuts started winding back, and changes to Nippon Individual Savings Accounts took effect.
Bloomberg: Yen Slump Is Exacerbated by Japanese Demand for Global Stocks
And there you have it.
Now, this is not some “I told you so” nonsense that I’m doing here - I have zero interest in doing that. In fact, I’ll even say that I don’t even know if this rush out of JPY and into US equities is actually underway, and to what degree of market impact if so. It does indeed seem to be happening, and with some degree of material influence on markets. So, this is once again just me flagging potential additional forces and factors that are missing from the broader discussion that I see being regurgitated out there.
How Japanese ETF investors get far better returns than USD investors of the same exact holdings.
In the Jan 4th article, I go through a bunch of US ETFs like SPY (S&P500 ETF) or IEF (ishares 7-10Y US Treasury ETF) - these also exist in Japan, listed on Tokyo Stock Exchange and trade regularly with increasing volume and inflows. Furthermore, there these same/similar ETFs that have a currency hedged version.
Essentially what the currency hedged ETFs do is to try and more or less remove any currency fluctuation impact on the ETF performance - which basically means I, a JPY based investor of a currency hedged SPX ETF (like Japan ticker 2634: FX hedged S&P500 ETF), I would get the same return profile as a USD based investor of SPY. Currency is no longer a factor, and the ETF will do what it does.
But what that also means is that if I own an NON-HEDGED ETF (like Japan ticker 1655: S&P500 ETF, no FX hedge)- then when USDJPY goes up (yen weakens/dollar strengthens), that works to my benefit, because the asset’s currency is appreciating against my home currency.
See excerpt from Jan 4th below that illustrates this example:
“US ticker SPY, Japan ticker 2634 S&P 500 ETF currency hedged, and 1655 S&P 500 (no hedge).
SPX itself has a bad 2022- but being long SPX from a JPY-based investor never actually saw losses throughout 2022.
And in 2023, when both SPX AND USDJPY rallied, 1655 S&P500 unhedged ETF really killed it, up over 30% on the year. Which beats out even the world’s best performing major DM equity index: home based NKY225.
This reinforces the “go long US” sentiment.
So let’s now take a look at how these investments have performed so far in 2024 after that article was written. This will hopefully shine some light on a lot about what’s happening in markets and market preferences.
Yes, Japanese equities are crushing it (again) this year- the broad based TOPIX index is +9% (actually closer to +10%) vs SPX’s (still respectable) +5%. BUT, USD is up +5 or 6% against JPY on the year as well. Which means that ticker 1557 S&P500 ETF with NO currency hedge gets an additional +5% or so boost in returns. And therefore, a JPY based investor of S&P500 has a year to date return of +11%.
That not only beats the returns of a USD based investor of the same exact SPX holdings (i.e. an American in America who bought SPY with dollars) by +5% on the same assets, but the JPY/Japanese investor is also getting a better return than if they were to just buy domestic TOPIX index ETF with home currency. And again, this is with Japan equities crushing it as it is.
So- when USDJPY rises, and U.S. markets rise, and US stocks already have a favorable bias to own over domestic Japanese stocks, and JPY getting crushed year after year and increasingly seen as more risky to hold yen cash than risky stocks by the Japanese, you get flows of selling yen to buy USD, to then buy USD investments.
Japanese don’t give a shit about Apple’s weak China sales - because they’re not “stock picking” / “buying AAPL” - they’re FLEEING a battered currency and AVOIDING non-sexy Japanese stocks at bubble era all time highs.
See the same assets below, starting from 2023- yes, TOPIX is up almost 40%, BUT, 1557 S&P ETF is +50%, because USD is up +10% vs JPY over that period. (And 1557 SPX ETF outperforms the same exact holdings of SPY by +20%):
Again, it doesn’t even really matter if US stocks are “doing well” or earnings are doing / not doing whatever the hell - if the yen is getting crushed against USD, it can negate losses on the USD asset. See from 2022- a year when SPY was down some -25%, but USDJPY was +30%. That nets out to a JPY investor not really ever taking big losses on SPX throughout 2022, and then in 2023 when both SPX and USD rally, the investor of 1557 has +30% higher return than a USD based SPY investor, AND STILL beats domestic TOPIX index returns:
So- to my fellow American US based, USD denominated investor of U.S. equities - do you now see why the weakening yen and the soaring Japan equity market to scary untouchable all time highs turns into SPX and Mag-7 inflows?
Here’s one more for you on why you, my fellow American who (sort of understandably) doesn’t give a shit about things that happen in markets / the world at large outside of America, are being impacted by the yen.
US ticker RSP is the SPX equal-weight index ETF - meaning, 7 stocks don’t comprise of 80% of the index gains for RSP.
SPX / RSP ratio is essentially a sort of “long the Mag-7 only” structure (long SPX cap weighted / short SPX equal weighted) - that’s the purple line in the chart below. You can look at it in various ways- one of which can be a sort of representation of US market breadth (when SPX rises relative to RSP, that’s likely a sign of Mag7 concentrated returns and vice versa - not perfect but you get it). And I’ve simply overlaid USDJPY on top of SPX / RSP ratio:
Imperfect as SPX/RSP may be, it’s all the more incredible how lockstep with USDJPY its price action is.
And if you’re thinking “that’s more of a function / reflection of UST yields, as USDJPY & US yields tend to be tightly correlated” - yes, that’s a good go-to assumption to make (that’s what I did myself). But look at the chart - SPX/RSP and USDJPY are more in-line with one another than any other pairing of the 3:
So - yen matters, and Japan equities surging to all time highs matters FOR US STOCK MARKETS - it matters in explaining (or at least filling in some of the holes) who is plowing into US equities, and why. And at the moment, the “why” really has nothing to do with anything US related. Some overly scrutinized piece of backwards looking US macro data that will probably be revised anyway, a Fed speaker picked his nose, US elections are going to be the end of democracy no matter who wins, and whatever else people are over-concentrating their focus on as market drivers - just so you know, the $14 trillion in Japanese household assets, more than half of which is in cash that needs to be deployed - that capital just doesn’t care about any of those things. And not because they aren’t important or significant - it’s a matter of relative priorities.
Japan is a savings obsessed nation and culture - that’s another way of saying “deflationary mindset.” More than ½ of household net worth is in cash. That means that no other nation of a developed economy forgoes consumption for future security than the Japanese do.
But now, the Japanese are starting to part with their precious precious cash. Why? It’s really not because of New NISA alone - NISA scheme has existed for a decade - this is just a tweak to the loosen the limits of their investment tax exemptions. There is a fundamental mindset shift underway - and a very significant one at that.
“Weak yen” (which was once seen as a net positive) is a very different look when mixed with inflation - a worse look. Very very much for the worse. So much so that the ultimate safe haven asset (cash/JPY) for the ultimate safety seeking population (Japanese households) is now in question. That’s what a 6 month -30% plunge in JPY will do. They’re not investing record amounts into foreign assets because the destination is attractive - they didn’t just now discover the existence of the Nasdaq 100 in January 2024. In fact they’re not even “investing” at all - they’re DIVESTING from perceived (and very real) risk - JPY.
As I said in my Jan NISA article:
My interpretation of the NISA effort being pushed out to the population is more than Japan’s forewarning to current “younger” taxpaying population (relative “younger” within context of world’s most elderly population- as in people even 50+) that the government will break its future promises and obligations to them. Japan officials are basically saying that in the longer term, holding cash, JPY, is riskier than equities. And nobody is more afraid of equity market risk than post-bubble Japan, and yet they’re still, long term equity allocation is deemed safer than JPY cash concentration.
Quite frankly, they don’t care what households do with their cash, so long as they get the hell out of being concentrated long JPY. It’s not (just) about self-sustaining asset growth for individuals so that a broken national pension won’t devastate future generations who paid into it and won’t receive their promised payouts- it’s also about protecting existing net worth while they can, from future worthless assets.
Notice that they also aren’t pushing for cash to reallocate to JGBs/fixed income - and it’s not because they know BOJ has that covered. Maybe it’s because JGBs offer little-no yield anyway? OR - could it be due to the same reason officials are steering households away from JPY cash- avoid Japanese government issued assets, be it JPY or JGBs, as both will someday be massively slashed value, if not outright worthless.
And I think households are also coming around to the government’s view on JPY’s inability to preserve its value.
So to come back to my point on not caring about what U.S. investors see and define as risk/reward - it’s not that the Japanese don’t care about capital at risk- it’s that they’re shifting their asset holdings from a fundamentally different starting point and purpose. Again, they’re not investing, they’re divesting. And that means that US equities are, and will be bought or not based on perceptions and focus on the yen, and not what the replacement asset is.
Something to keep in mind - should we start to see flow behavior that makes no sense from an “asset buying / investing” stance.
And again, this is why I am saying - US equity investors, watch the yen. Watch what those with market moving firepower are watching - and not just what “should be” to those with frankly irrelevant motives.
Bitcoin
First- for those who don’t care about BTC - you don’t have to “care” about anything, but it is a gauge of risk appetite direction, so you need monitor it regardless of ideology.
BTC is rallying aggressively. Why. “BTC ETFs listed in U.S.” Sure (not sarcastic)- though spot BTC did sell off immediately upon the anticipated spot BTC ETFs’ trading debuts - but they’ve since rebounded higher. Why. Here’s a simple angle to consider (or consider not forgetting): BTC is not an “American” (or ANY sovereign regional) asset by any means. Try looking at spot BTC price action through the lens of Japan markets (yes, Japan - where more than half of the trading activity in the 2017 BTC bubble and crash was taking place, where Mt. Gox pioneered missing crypto assets of customers, and where the names Satoshi and Nakamoto are commonplace).
Before jumping down my throat about any of what I just said, just note 2 things for your own good: spot BTC vs NKY 225, and the BTC/JPY cross (and NOT BTC/USD default quoting.
For the month of Feb 2024, here is spot BTCUSD in white, which never stops trading 24/7, and NKY futures in green, which are subject to trading days/hours and holidays. And as you can see, they move very closely with one another.
So now “the question” is - BTC or NKY: which is driving / leading which? It’s clearly NKY moving, and spot BTC going along for the ride. Put aside the trillions in total market size differences, the daily notional turnover, and all of the obvious. The reason I just mentioned their respective trading hour differences is because this 9 day +25% sudden BTC rally in Feb doesn’t seem to have any legs of its own on weekends, when NKY futures are closed for trading (the empty gaps in NKY green chart, which coincide with a pause in BTC upside momentum). In fact, last Monday Feb 12th was a Japan market holiday for an extended 3-day weekend (meanwhile U.S. markets / U.S. listed spot BTC ETFs were fully open for normal trading) - during which spot BTC’s double digit breakout rally that was in progress had also suddenly fizzled out, only to resume when NKY trading and upside did.
Your next thought might be something along the lines of - “that’s because BTC trades like a levered NDX risk asset - so, it’s not just some BTC ⇄ NKY-only thing.”
Yeah. So, for this particular upside move in this current window of time being discussed - it actually IS a NKY-only thing. See below- same chart from before, +SPX EMINIS in red:
SPX directionally splits away from BTC on 3 occasions in just this one-month chart alone: Jan 15th, Jan 22nd, and most recent Feb 13th. And look at the BTCUSD & NKY futures price action in comparison.
BTC price action doesn’t “just follow all stock markets/risk assets” indiscriminately - and in fact, it can’t - simply due to “stock markets” are not monoliths moving in directional unison - because at the end of the day, there’s always the reliably outlier of Japan. So with BTC clinging to “stock markets” - yes, it is, and more specific-it’s moving with NKY. Not always in lockstep, but far more so in line with NKY than with any other DM index at this juncture. And so, to any non-crypto equity folks out there reading this - this BTC & NKY (specifically) matters. Though there’s no way to quantify this, generally - if NKY & BTC are exhibiting intraday ~ weeks-long increasingly correlated price action particularly to the upside, and both are ferociously closing in on their respective multi-year (decade) all-time-highs, that may very well suggest that the NKY index move is increasingly resembling and expressing traits of market froth FOMO - and that’s why monitoring BTC in tandem with NKY is useful and important.
And again, I can also offer an entirely contrary take on NKY ≈ BTC price action as well. We will get deeper into foreign institutional inflows to Japan equities later in the index derivatives and single-stocks sections below - but some of the on-the-ground chatter coming out of the (smaller/not-Nomura & Daiwa) domestic institutional brokerage houses here in Tokyo starting around mid-January is that they are getting incoming calls and order flow from overseas investors who have either been M.I.A. for the past decade(s), or are entirely new clients to these Japanese domestic brokers, placing buy orders, discussing analyst research etc. And although its obviously difficult to get granular detail, it seems that these are foreign investors who are engaging in Japan equities for the first time in their respective funds (and not just a foreign veteran Japan investor establishing new domestic brokerage relationships - perhaps to hide flow activity from the big banks they already work with).
In other words, for foreign investors, buying Japan is no longer a career-risk - thanks to the “approval” and blessing of Warren Buffett-san who de-stigmatized (and rallied) Japan equities. In fact, the risk may now be to NOT have ANY Japan allocation at all.
This shift in institutional perception, expressed via actual portfolio allocation, now that the long-awaited approval from that which must be respected (be it an oracle or a commissioner) - does this new foreign institutional money into Japan not sound analogous (if not identical) to the institutional BTC allocation post-ETF approval and listing? If a large, liquid, and 100% legal / compliant spot BTC ETF with an iShares logo trading on the Nasdaq ends up having some triple digit return with a ridiculous Sharpe ratio by bonus season, and you didn’t own a single share, or a single Japanese company - I could see far more career risk in not partaking what was previously forbidden.
To tie them back together - the chatter on those Japanese domestic brokerages getting new foreign first-time at the Japanese equity rodeo clients in mid-January that pushed NKY up by double digit % within the month - that timing coincides with Jan 11th, when all those U.S. spot BTC ETFs debuting for trading and instantly took in billions in AUM.
So those are your 2 entirely different potential takes on this:
That’s either FOMO froth flow to chase a long Japan and/or BTC, or its Berkshire-esq acquisition of getting greedy when others are “fearful” (dismissive).
Either one (or neither one) you wish to adopt, be my guest - I’m here to inform and present observations, findings and facts, and then present differentiated angles of interpretation in hopes of expanding people’s horizons. What you do / don’t do with any of that is entirely up to you.
And although I am focused on this recent time frame, this whole NKY & BTC mirroring price behavior extends way back from just the most recent 1-month market snapshot- in case you’re unaware, NKY and BTC price action has long-term mirrored one another since NKY was at 15,000 and spot BTCUSD was trading at $500.
Now, for any BTC(USD) people - you’re probably wondering when BTCUSD will get back to making IT’S new ATH’s I presume. First - are you aware that BTCJPY just broke through its 2021 ATH’s? If not - that’s a critical development to be cognizant of.
And why? Obviously - the JPY variable.
So, (when) will BTCUSD follow suit and make its new ATHs? Given the NKY and spot BTC tight correlation being exhibited at the current moment - I would say that BTC direction, let alone new ATHs or not, is heavily dependent on whether NKY can break meaningfully through 40,000 and then break out from there.
All else equal - if that were to happen, you will likely see BTCUSD in new record high territory shortly thereafter. Conversely, if NKY hits ~40k and then slams down say -10% over the coming days~weeks, spot BTC will give up some recent gains. And if NKY meanders around 40,000 and just suspends itself in limbo without breaking out or crashing down - that’s when you’ll see what spot BTC price action that isn’t directionally influenced by NKY looks like.
And to the broader audience - market behavior can transcend across different green and red blinking tickers. Interestingly, spot BTC’s price action journey over the course of the last 5-10 years sort of resembles a sped-up version of the NKY index over the last 40 years - with the BTCUSD 2021 all time highs being the NKY 1989 highs, followed by a very slow -80% grind lower from peak (for both), and then about an equally long time to recover back to ATHs.
If BTCJPY can print new highs, then perhaps there’s hope for NKY.
Stay tuned for Part 2 coming - the actual NKY market itself, and all of the overlapping and compounding developments over the past month that has driven NKY to these heights. Be it: ARM Holdings rallying SoftBank into Feb SQ, the Nikkei/TOPIX ratio, Nikkei covered call and the March 40k calls, Tokyo Electron earnings, foreign fund flows and more.
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Thank you as always - now go watch Japan cash trading!
Weston
This a terrific piece. A big eye opener.