Japan is in the spotlight these days as the Bank of Japan is about to change its leadership. Haruhiko Kuroda was the mastermind behind the extreme easing taking place in Japan for the last decade, and now he is stepping down.
Kazuo Ueda is set to replace him in April.
In the meantime, at his confirmation hearing, Ueda did not hint where the monetary policy would go next – will he favor more easing, or is it time to reverse course?
Extreme easing in Japan did not bode well for stock market investors. As seen below, the main stock market index, Nikkei 225, is in consolidation for the past couple of years, moving directionless.
So is it time to buy Japanese stocks now that the Bank of Japan will have a new Governor?
A bullish triangle points to a new attempt at 30,000 points
The bulls’ patience may have paid if the triangle seen above breaks higher. Such a consolidation at the end of strong rally points to more upside.
Effectively, it means that the Nikkei 225 index should trade well above 30,000 points if it closes above 29,000. Such a close implies that the triangle ended, and many traders would consider the pattern a pennant.
Pennants are powerful formations. Given the timeframe, the Japanese stock market index has more room to rally especially because of the possible double top formed in 2021.
A double top pattern is at risk of being invalidated if the market does not make a series of lower lows and lower highs. In this case, it does not make such a series, but it looks like it builds energy to break higher.
Summing up, Nikkei 225 looks bullish here despite the two-year consolidation. Look for the market to make a new high if the triangle breaks to the upside.
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