Nikkei Breakout Accelerates Amid Yen Weakness and Technical Momentum

The Nikkei index has made a strong start to October, rising significantly in tandem with renewed weakness in the yen. This combination of factors has led to a powerful rally for export-heavy Japanese equities.

Historical data suggests that strong starts to the month have often boded well for the index over the remainder of October. In three completed years where the Nikkei gained at least 1% on the first trading day of October, it went on to post further gains.

Other factors are contributing to the move, including the beginning of the second half of Japan's fiscal year and the yen's recent weakness. However, data from the Bank of Japan's Tankan survey has not provided any clear signals for buying Japanese equities.

The technical picture is also bullish, with the Nikkei breaking through key resistance levels and reclaiming a previous support level at 68,500. The price has since broken above the 69,530 level, which could set its sights on a retest of the psychologically important 70,000 level.