Nikkei 225 slips ahead of election as sales tax speculation and trade risks weigh on sentiment
Nikkei consolidates above key trendline as markets await Japan’s Upper House election
The Nikkei 225 index edged down 0.04% to close at 39,663 on Wednesday, as market participants turned cautious ahead of Japan’s Upper House election. Broader uncertainty over potential fiscal reforms, especially speculation about possible sales tax cuts or abolition, kept investors on edge.
Highlights
- Nikkei 225 closes at 39,663 as fiscal reform concerns weigh ahead of Japanese elections
- Index holds inside bullish channel with key support at 39,200 and resistance near 41,300
- Tariff threats from Trump and rising bond yields add pressure to heavyweight stocks
The TOPIX index also declined by 0.21% to 2,819, reflecting broader unease in the equity market.
Nikkei 225 index price analysis (Source: TradingView)
Rising speculation that the Japanese government may alter the national consumption tax structure has driven Japanese government bond yields higher in recent days, as investors brace for increased fiscal borrowing. Meanwhile, U.S. President Donald Trump’s renewed threats of tariffs on pharmaceuticals and semiconductors, possibly effective by August 1, added to the market’s unease. Key index constituents came under pressure, with Lasertec plunging 5%, Sanrio falling 2.9%, and Mitsubishi UFJ and Toyota down by 1.4% and 0.9%, respectively.
Technical picture signals consolidation within an uptrend
From a structural standpoint, the Nikkei 225 remains in a bullish trend, consolidating within an ascending parallel channel that has guided price action since early April. The upper boundary near 41,300 capped recent gains, while dynamic support from the lower boundary holds above 39,200. The index closed the session near the 50 EMA (39,564), with short-term resistance seen at 39,906, where the supertrend indicator lies.
All major short-term EMAs (20, 50, 100, and 200) are stacked in bullish order, although the 20 and 50 EMAs have started to flatten, suggesting momentum has temporarily stalled. As long as the Nikkei remains above 39,200, the structure favors upside targets at 40,500 and 41,300. A breakdown below 39,200 would shift the outlook toward neutral, with 38,550 as the next area of support.
As covered in our earlier analysis, the 39,200 region remains a critical pivot. The current consolidation above this zone continues to reflect healthy digestion of prior gains. A sustained break above 39,900 could resume the rally toward 41,000, while any decisive move below 39,200 would shift the short-term bias to neutral or bearish.
