Nikkei Faces Test of Its Bottom Line

Analysts who follow market patterns are keeping a close eye on Japan’s benchmark Nikkei-225 stock index.

The Nikkei plunged 2.2% on Monday to close below 15,000 as more bad news hammered the world’s second-largest economy and sent jitters through other Asian markets.

The index traded briefly below 14,664--its lowest close this year, which it hit Jan. 12 as Indonesia’s currency was collapsing--before ending at 14,794.

Early today the Nikkei bounced back above 15,000. It traded at 15,024 in midmorning in Tokyo,

Still, breaking below the 15,000 barrier could portend more weakness, analysts warn.

The most important barrier, however, is about 14,500. The Nikkei has found major “support” in that range all through the 1990s, meaning it has consistently rebounded after dropping to that range:

* In 1992, for example, the index declined from about 22,300 in January to about 14,800 by mid-August--then zoomed to about 18,500 by early September.

* In 1995, the Nikkei fell to its decade low of 14,485 on July 3, then rallied sharply into 1996.

* After falling to 14,664 on Jan. 12 of this year, the index rallied back to above the 17,000 mark in late winter.

* A modest rally also followed the most recent closing low of 14,715 set on June 17.

Among the factors contributing to the latest gloom: soaring Japanese bankruptcies, tumbling retail sales, the overhang of Russia’s problems, continuing weakness of the yen, last week’s dismal Wall Street showing and a growing belief that Japan is so politically paralyzed that it cannot begin to reverse its banking crisis any time soon--no matter what the new administration of Prime Minister Keizo Obuchi says.

And after Monday’s swoon, some analysts remained skeptical about the Nikkei’s prospects, at least for the near term.

“It doesn’t look like this trend is going to be broken any time soon,” said Mike Morizumi, an equity analyst with Merrill Lynch Japan.

Precisely because 14,500 has been a key support level, bearishness could soar if the Nikkei falls decisively through that range, analysts warn.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Back to Its Base Level

Japan’s benchmark Nikkei 225-stock index has dropped to around the 15,000 level several times since 1992 before recovering each time. Quarterly closes of the Nikkei since 1985, and latest, in thousands:

Monday: 14,794.66

Source: Reuters