FxWirePro: Another 1500 points drop in Nikkei is likely in the near term

Japanese benchmark stock index Nikkei 225 is firmly in bearish territory as it has shed more than 20% from its peak and down more than 25% in past six months. This year alone it has dropped more than 18%. Nikkei is currently trading at 15700 area. Many would expect 15000 to provide heavy psychological support, but Nikkei according to our calculations likely to drop as low as 14200 area.

Recent rise in yen, which is up more than 85 in past six months and around 4.7% this year against Dollar likely to cloud both inflation outlook and axe exporters profitability as well as Japan's trade balance. Moreover, Bank of Japan's (BOJ) negative rate due to its three tier structure, unlikely to spur heavy lending immediately. It will in fact impact bank's profitability as they won't be able to pass on the negative rates to consumers.

Next fundamental boost from the market can come from European Central Bank's (ECB) monetary policy decision that is scheduled for March, still a month to go and FOMC rate decision that is even later in March. Until then there are ample room for the bears to keep shorting the stocks.

Technically speaking, Nikkei has cleared 61.8% Fibonacci level around 16,000, when drawn on the Bull Run, from mid-2012 to August 2015. Next level lying at 14500 area. We expect Nikkei to breach and bounce in the region.