The situation in Japan has completely returned within a few weeks after the victory in the last elections of the new Japanese Prime Minister Shinzo Abe, who works for an ultra-accommodative monetary policy to get out of deflation. The prospects for a political revival of Japanese growth associated with strong action by the Bank of Japan continues to delight the financial community as shown by the surge in the Nikkei which now operates in over 40% above the lows of the summer of 2012. And yet, given the valuations and weakening yen, it seems that any downturn will be a good opportunity to take advantage of the upside potential.

The economic outlook continues to improve in the Land of the Rising Sun as evidenced by the evaluation of the economy in March by the Japanese government that evokes signs of improvement in manufacturing production and a strong rebound in capital spending. Meanwhile, analysts have regularly revised upward their EPS estimates regarding the Japanese companies. Indeed, the weakness of the yen boosts exportations and creates jobs.

Graphically, the trend remains strongly bullish above 11,285 points, even above 11,650-11,800 points, threshold coinciding with the 20-day moving average. After his recent surge, we now believe that a consolidation is required and a phase of very moderate decline could occur under the strong technical resistance in daily and weekly at 12,550/12,650 points.

However, we remain strongly bullish on the Japanese index which keeps a significant upside potential. Two strategies can then be implemented. If a consolidation occurs, a pullback towards the area of 11,250-11,650 points will be a great opportunity to take a long position to target 14,500 points in a few months. Similarly, a weekly breakout of the 12,650 points in the short-term, would give a new upside potential with 13,350 points in line of sight.

We can implement these two strategies using the Nikkei 225 0613 Future (code: NKDXXXX on CME Futures market).