Nikkei 225 Drops as Expectations of Bank of Japan Rate Hike Rise

The Nikkei 225 Index has been under pressure in recent days due to rising expectations of a Bank of Japan rate hike. The index dropped to 65,361 on Monday after reports showed that Japan's industrial production rose 3.6% YoY and retail sales increased by 4% in July.

The strong macro data supports earnings, but the market is already pricing in a potential interest rate increase. Technicals are weak, making it a good time to buy if the index holds its support level of 64,653.

A key risk for investors is that the Bank of Japan hikes interest rates more aggressively than expected, pushing Japanese yields up and negatively impacting equity valuations before earnings catch up.