Outlook for the Nikkei average this week [30-July 2023]

 [Fundamental viewpoint]

In the U.S. market last week, stock indices rose for the week as stocks with good earnings were bought and the results of the FOMC meeting were generally in line with market expectations.

Weekly change NY Dow: +0.66% NASDAQ: +2.02% S&P 500: +1.01%.

                                       

On the other hand, medium- to long-term risks include concerns about the prolonged conflict in Ukraine, energy costs, financial instability and global economic slowdown due to rising interest rates, and the collapse of the real estate bubble and economic slowdown in China. This also raises concerns about the arrival of stagflation. In addition, geopolitical risks in East Asia and the Middle East continue to require attention.

The difference in the yield spread between the Japanese and U.S. markets is 4.80 points undervalued in the Japanese market when the revised OECD nominal GDP forecast for 2024 is taken into account. The undervaluation is due to the difference between the S&P 500's P/E ratio of 20.9 and the Nikkei 225's P/E ratio of 15.2, the difference between the U.S. and Japanese interest rates, and the difference in GDP growth rates.
This means that if the difference in GDP growth between Japan and the U.S. in 2022 is 4.80 points larger than the OECD forecast (Japan is revised downward or the U.S. is revised upward), or if the current year's forecast PER of the Nikkei Index stocks is around 55.6, or if the Nikkei Index is around 120,140 yen, the Nikkei Index will be at the same level as the current Nikkei Index price. 87,400 yen,

 

Fundamentally, the Japanese market is 87,400 yen less attractive than the US market. Weakness in the Japanese market was magnified last week.

 

[Conditions for Nikkei average rise]

In the future, the following assumptions are necessary for the Nikkei average to rise further.

①    Rising US market

②　Increase in profit forecast for the current fiscal year above the previous year's level

③ Further depreciation of the yen due to the widening interest rate gap between Japan and the U.S.

④ Upward revision of Japan's 2023 GDP estimate (now +3.5%) by OECD

⑤ Foreign investors over-buying

 

Looking at recent movements

①    Last week's NYDow's weekly chart was a positive line. The daily chart is above the 200-day line and above the clouds of the Ichimoku Kinko Hyo. The NASDAQ has a positivee weekly line. The daily price is above the 200-day line and above the Ichimoku cloud. This week, we will focus on whether or not the NY Dow can keep above the 25-day line.

②    As a result of the announcement of quarterly financial results, the forecasted ROE of the Nikkei225 index came in at +8.9%, an improvement of +0.1% from three months ago. The profit growth rate was +1.8%, an improvement of +0.7 percentage points from three months ago.

③    U.S. long-term interest rates rose and the interest rate differential between the U.S. and Japan widened from 3.40 to 3.41, but the dollar moved slightly higher against the yen in the range of ¥141 to ¥138. The dollar index rose +0.61% for the week.

④    The OECD's nominal GDP growth rate for Japan and the U.S. in 2024 is expected to be +2.96% for Japan and +3.40% for the U.S., so the Japanese market is 0.44 percentage points inferior in this aspect.

⑤    The July 3 week was overbought; the July 4 week was likely overbought and is expected to be overbought this week. Of the five points last week, (1) was bullish. ①②③⑤ are expected to have an impact.

 

[Technical viewpoint]

Looking at the Japanese market from a technical perspective, it is undervalued by 5.8 point (about 1900 yen when converted to the Nikkei 225) in the medium to long term in terms of the difference in the 200-day divergence rate from the NASDAQ. On the other hand, in terms of the difference in 200-day divergence from the NYDow, it is overvalued by 7.8 points in the medium to long term (about 2560 yen, which is calculated into the Nikkei 225).

 

The strength of the Japanese market versus the NY Dow was extended during the week. The VIX, a measure of U.S. market volatility, declined to a weekly low of 13.3. The Nikkei VI fell to a weekly low of 18.6. The U.S. market is optimistic, suggesting that the Japanese market is somewhat more volatile.

 

The Nikkei 225 is above the 9-day and 25-day lines. This is a "green light" for the short-term trend.

The Nikkei 225 is above the Ichimoku Kinko Chart cloud. The Nikkei 225's overall divergence was +18.6%, and its divergence from the 200-day moving average was +13.7%. 3 factors are positive, indicating a "green light" for the medium-term trend.

 

In the US market, the NYDow is above 9-day line and 25-day line and 200-day line. It is above the clouds of the Ichimoku Kinko Chart. NASDAQ is above 9-day line and  25-day line and 200-day line. It is above the clouds of the Ichimoku Kinko Chart.

It is a “green light” in the short term and a “green light” in the medium term.

 

[Outlook for this week]

Looking at the U.S. market from a fundamental perspective, concerns about a global economic slowdown due to the spread of the new coronavirus have receded, but risk factors include inflation and rising interest rates due to the Russia-Ukraine war and economic slowdown due to energy shortages and deteriorating political conditions in the EU, U.S.-China trade friction, financial market turmoil caused by the bursting of the Chinese real estate bubble and credit contraction, and geopolitical risks in the Middle East and East Asia.

 

Recent LIBOR rates have been on the rise, and we continue to be wary of a resurgence of financial instability.

 

Looking at the technical aspects, the U.S. market is in a medium-term up trend and a short-term up trend. The Japanese market is in a medium-term up trend, and the short-term is up trend.

 

Analysis of the foreign exchange market shows that the yen has been weakening since January 2023. This week, we expect the yen to be in the range of 140 to 143 yen.

 

In the U.S. this week, the main focus will be on U.S. employment data and earnings reports. Also of interest will be manufacturing orders, the JOLT jobs report, and the ISM manufacturing and services PMIs. Elsewhere in the region, the central banks of the United Kingdom and Australia will decide on their monetary policy policies. In addition, the Eurozone's second quarter GDP growth and inflation will also be in focus. Elsewhere, China will release its manufacturing and services PMIs, while Japan, Germany, and the Eurozone will release their unemployment rates.

Last week, the Nikkei 225 fell below its assumed range. The upside was about ¥310 below the assumed line and the downside was about ¥270 below the assumed line.

This week, the Nikkei 225 is expected to move between the Bollinger Band +2σ (currently around 33580 yen) on the upside and the 25-day line (currently around 32730 yen) on the downside.

 

This week is likely to be influenced by the U.S. jobs report and quarterly earnings results of major companies. Volatility in the Nikkei 225 is somewhat high, but the near-term potential for gains seems high.

Outlook for the Nikkei average this week [23-July 2023]

 [Fundamental viewpoint]

In the U.S. markets last week, stock indices were mixed for the week, with good-performing stocks being bought, while high-tech stocks were sold.

Weekly change NY Dow:+2.08 NASDAQ:-0.57,S&P 500:+0.69%.

                                       

On the other hand, medium- to long-term risks include concerns about the prolonged conflict in Ukraine, energy costs, financial instability and global economic slowdown due to rising interest rates, and the collapse of the real estate bubble and economic slowdown in China. This also raises concerns about the arrival of stagflation. In addition, geopolitical risks in East Asia and the Middle East continue to require attention.

The difference in the yield spread between the Japanese and U.S. markets is 4.83 points undervalued in the Japanese market when the revised OECD nominal GDP forecast for 2024 is taken into account. The undervaluation is due to the difference between the S&P 500's P/E ratio of 20.7 and the Nikkei 225's P/E ratio of 14.9, the difference between the U.S. and Japanese interest rates, and the difference in GDP growth rates.
This means that if the difference in GDP growth between Japan and the U.S. in 2022 is 4.83 points larger than the OECD forecast (Japan is revised downward or the U.S. is revised upward), or if the current year's forecast PER of the Nikkei Index stocks is around 53.3, or if the Nikkei Index is around 115,410 yen, the Nikkei Index will be at the same level as the current Nikkei Index price. 81,100 yen, the Japanese and U.S. markets will be in equilibrium, and the Japanese market will be undervalued by about 90,090 yen in the medium to long term.

 

Fundamentally, the Japanese market is 83,100 yen less attractive than the US market. Weakness in the Japanese market was magnified last week.

 

[Conditions for Nikkei average rise]

In the future, the following assumptions are necessary for the Nikkei average to rise further.

①    Rising US market

②　Increase in profit forecast for the current fiscal year above the previous year's level

③ Further depreciation of the yen due to the widening interest rate gap between Japan and the U.S.

④ Upward revision of Japan's 2023 GDP estimate (now +3.5%) by OECD

⑤ Foreign investors over-buying

 

Looking at recent movements

①    Last week's NYDow's weekly chart was a positive line. The daily chart is above the 200-day line and above the clouds of the Ichimoku Kinko Hyo. The NASDAQ has a negative weekly line. The daily price is above the 200-day line and above the Ichimoku cloud. This week, we will focus on whether or not the NY Dow can keep above the 25-day line.

②    As a result of the announcement of quarterly financial results, the forecasted ROE of the Nikkei 225 indexes came in at +9.0%. This is the same level as three months ago. The profit growth rate was +1.9%, down -0.8 percentage points from three months ago.

③    Although U.S. long-term interest rates were unchanged, the interest rate differential between the U.S. and Japan widened to 3.40 from 3.36, and the dollar moved toward a weaker yen in the range of ¥137 to ¥141. The dollar index rose +1.13% for the week.

④    The OECD's nominal GDP growth rate for Japan and the U.S. in 2024 is expected to be +2.96% for Japan and +3.40% for the U.S., so the Japanese market is 0.44 percentage points inferior in this aspect.

⑤    The second week of July was overbought; the third week of July was likely overbought and is expected to be overbought this week. Of the five points last week, ③ was bullish. ①②③⑤ are expected to have an impact.

 

[Technical viewpoint]

Looking at the Japanese market from a technical perspective, it is undervalued by 5.3 point (about 1710 yen when converted to the Nikkei 225) in the medium to long term in terms of the difference in the 200-day divergence rate from the NASDAQ. On the other hand, in terms of the difference in 200-day divergence from the NYDow, it is overvalued by 7.1 points in the medium to long term (about 2290 yen, which is calculated into the Nikkei 225).

 

The strength of the Japanese market versus the NY Dow narrowed during the week. The VIX, a measure of U.S. market volatility, was unchanged at 13.6 for the week. The Nikkei VI declined to a weekly low of 19.8. The U.S. market is optimistic, suggesting that the Japanese market is volatile.

 

The Nikkei 225 is below the 9-day and 25-day lines. This is a "red light" for the short-term trend.

The Nikkei 225 is above the Ichimoku Kinko Chart cloud. The Nikkei 225's overall divergence was +15.5%, and its divergence from the 200-day moving average was +12.7%. 3 factors are positive, indicating a "green light" for the medium-term trend.

 

In the US market, the NYDow is above 9-day line and 25-day line and 200-day line. It is above the clouds of the Ichimoku Kinko Chart. NASDAQ is below 9-day line but above 25-day line and 200-day line. It is above the clouds of the Ichimoku Kinko Chart.

It is a “yellow light” in the short term and a “green light” in the medium term.

 

[Outlook for this week]

Looking at the U.S. market from a fundamental perspective, concerns about a global economic slowdown due to the spread of the new coronavirus have receded, but risk factors include inflation and rising interest rates due to the Russia-Ukraine war and economic slowdown due to energy shortages and deteriorating political conditions in the EU, U.S.-China trade friction, financial market turmoil caused by the bursting of the Chinese real estate bubble and credit contraction, and geopolitical risks in the Middle East and East Asia.

 

Recent LIBOR rates have been on the rise, and we continue to be wary of a resurgence of financial instability.

 

Looking at the technical aspects, the U.S. market is in a medium-term up trend and a short-term no trend. The Japanese market is in a medium-term up trend, and the short-term is down trend.

 

Analysis of the foreign exchange market shows that the yen has been weakening since January 2023. This week, we expect the yen to be in the range of 141 to 144 yen.

 

In the U.S. this week, attention will be focused on the Fed's decision to raise interest rates, advance estimates for Q2 GDP growth, and earnings results from major companies. There are also important releases to watch, including personal income and spending, the PCE price index, durable goods orders, and the S&P Global PMI. Outside of the U.S., interest rate decisions by the ECB and the Bank of Japan, as well as inflation rates in Germany, France, and Australia will be of interest. Other preliminary PMIs will be released for Australia, Japan, France, Germany, the UK, and the Eurozone.

Last week, the Nikkei 225 remained within the assumed range. The upper price was about 60 yen below the assumed line and the lower price was about 240 yen above the assumed line.

This week, the Nikkei 225 is expected to move between the Bollinger Band +1σ (currently around 33400 yen) on the upside and the Bollinger Band -1σ (currently around 32360 yen) on the downside.

This week will be influenced by the monetary policies of the Fed, the ECB, and the Bank of Japan, as well as the quarterly earnings results of major companies. Volatility in the Japanese markets remains high, and volatility in the Nikkei 225 is likely to remain high.

Outlook for the Nikkei average this week [17-July 2023]

 [Fundamental viewpoint]

In the US market last week, the CPI/PPI fell short of market expectations, and the Fed's rate hike fears receded, and the stock index rose for the week.

Weekly fluctuation rate NY Dow: +2.29 NASDAQ: +3.32% S&P500: +2.42%.

                                       

On the other hand, medium- to long-term risks include concerns about the prolonged conflict in Ukraine, energy costs, financial instability and global economic slowdown due to rising interest rates, and the collapse of the real estate bubble and economic slowdown in China. This also raises concerns about the arrival of stagflation. In addition, geopolitical risks in East Asia and the Middle East continue to require attention.

The difference in the yield spread between the Japanese and U.S. markets is 4.73 points undervalued in the Japanese market when the revised OECD nominal GDP forecast for 2024 is taken into account. The undervaluation is due to the difference between the S&P 500's P/E ratio of 20.4 and the Nikkei 225's P/E ratio of 14.9, the difference between the U.S. and Japanese interest rates, and the difference in GDP growth rates.
This means that if the difference in GDP growth between Japan and the U.S. in 2022 is 4.73 points larger than the OECD forecast (Japan is revised downward or the U.S. is revised upward), or if the current year's forecast PER of the Nikkei Index stocks is around 50.3, or if the Nikkei Index is around 109,460 yen, the Nikkei Index will be at the same level as the current Nikkei Index price. 77,060 yen, the Japanese and U.S. markets will be in equilibrium, and the Japanese market will be undervalued by about 90,090 yen in the medium to long term.

 

Fundamentally, the Japanese market is 77,060 yen less attractive than the US market. Last week, weakness in the Japanese market diminished..

 

[Conditions for Nikkei average rise]

In the future, the following assumptions are necessary for the Nikkei average to rise further.

①    Rising US market

②　Increase in profit forecast for the current fiscal year above the previous year's level

③ Further depreciation of the yen due to the widening interest rate gap between Japan and the U.S.

④ Upward revision of Japan's 2023 GDP estimate (now +3.5%) by OECD

⑤ Foreign investors over-buying

 

Looking at recent movements

①    Last week's NYDow's weekly chart was a positive line. The daily chart is above the 200-day line and above the clouds of the Ichimoku Kinko Hyo. The NASDAQ has a positive weekly trend. The daily price is above the 200-day line and above the Ichimoku cloud. This week, we will focus on whether or not the NY Dow can keep above the 25-day line.

②    As a result of the announcement of quarterly financial results, the forecasted ROE of the Nikkei 225 indexes came in at +9.0%, an improvement of +0.1 percentage points from three months ago. The profit growth rate was +2.4%, down -1.2 percentage points from three months ago.

③    U.S. long-term interest rates declined and the interest rate differential between the U.S. and Japan narrowed from 3.65 to 3.36, moving the dollar against the yen in the range of ¥142 to ¥137. The dollar index fell -10.05% for the week.

④    The OECD's nominal GDP growth rate for Japan and the U.S. in 2024 is expected to be +2.96% for Japan and +3.40% for the U.S., so the Japanese market is 0.44 percentage points inferior in this aspect.

⑤    The first week of July was overbought; the second week of July was likely oversold; and this week is expected to be overbought. Last week, of the five points, ① was bullish and ③ was bearish. ①②③⑤ are expected to have an impact.

 

[Technical viewpoint]

Looking at the Japanese market from a technical perspective, it is undervalued by 6.1 point (about 1980 yen when converted to the Nikkei 225) in the medium to long term in terms of the difference in the 200-day divergence rate from the NASDAQ. On the other hand, in terms of the difference in 200-day divergence from the NYDow, it is overvalued by 9.6 points in the medium to long term (about 3110 yen, which is calculated into the Nikkei 225).

 

The strength of the Japanese market versus the New York Dow narrowed during the week. The VIX, a measure of U.S. market volatility, rose slightly to 13.6 for the week. The Nikkei VI rose to 20.3 for the week. The U.S. market is optimistic, suggesting that the Japanese market is volatile.

 

The Nikkei 225 is below the 9-day and 25-day lines. This is a "red light" for the short-term trend.

The Nikkei 225 is above the Ichimoku Kinko Chart cloud. The Nikkei 225's overall divergence was +17.4%, and its divergence from the 200-day moving average was +13.5%. 3 factors are positive, indicating a "green light" for the medium-term trend.

 

In the US market, the NYDow is above 9-day line and 25-day line and 200-day line. It is above the clouds of the Ichimoku Kinko Chart. NASDAQ is below 9-day line and 25-day line and 200-day line. It is above the clouds of the Ichimoku Kinko Chart.

It is a “green light” in the short term and a “green light” in the medium term.

 

[Outlook for this week]

Looking at the U.S. market from a fundamental perspective, concerns about a global economic slowdown due to the spread of the new coronavirus have receded, but risk factors include inflation and rising interest rates due to the Russia-Ukraine war and economic slowdown due to energy shortages and deteriorating political conditions in the EU, U.S.-China trade friction, financial market turmoil caused by the bursting of the Chinese real estate bubble and credit contraction, and geopolitical risks in the Middle East and East Asia.

 

Recent LIBOR rates have been on the rise, and we continue to be wary of a resurgence of financial instability.

 

Looking at the technical aspects, the U.S. market is in a medium-term up trend and a short-term up trend. The Japanese market is in a medium-term up trend, and the short-term is down trend.

 

Analysis of the foreign exchange market shows that the yen has been weakening since January 2023. This week, we expect the yen to be in the range of 138 to 135 yen.

 

This week in the U.S., attention will be focused on earnings results from major U.S. companies such as Bank of America, Morgan Stanley, Goldman Sachs, IBM, Netflix, Tesla, and Johnson & Johnson. Also of interest will be housing-related data, including retail sales, industrial production, existing home sales, housing starts, and building permits. Elsewhere in the region, China is set to release its second quarter GDP growth, retail sales, industrial production, and fixed asset investment. Also of interest will be the inflation rates for the U.K. and Japan.

Last week, the Nikkei 225 moved above its assumed range. The upside was about 340 yen above the assumed line and the downside was about 580 yen above the assumed line.

This week, the Nikkei 225 is expected to move between the 25-day line (currently near 32970 yen) on the upside and the Bollinger Band -2σ (currently near 31920 yen) on the downside.

This week is likely to be affected by the quarterly earnings results of major U.S. companies. However, volatility is declining in both the U.S. and Japanese markets, and relatively firm market conditions are expected.

Outlook for the Nikkei average this week [9-July 2023]

 [Fundamental viewpoint]

In the U.S. markets last week, stock indexes fell for the week due to concerns about a Fed rate hike and uncertainty about the global economic outlook.

Weekly change NY Dow: -1.96% NASDAQ: -0.92% S&P 500: -1.16%.

                                       

On the other hand, medium- to long-term risks include concerns about the prolonged conflict in Ukraine, energy costs, financial instability and global economic slowdown due to rising interest rates, and the collapse of the real estate bubble and economic slowdown in China. This also raises concerns about the arrival of stagflation. In addition, geopolitical risks in East Asia and the Middle East continue to require attention.

The difference in the yield spread between the Japanese and U.S. markets is 4.91 points undervalued in the Japanese market when the revised OECD nominal GDP forecast for 2024 is taken into account. The undervaluation is due to the difference between the S&P 500's P/E ratio of 20.1 and the Nikkei 225's P/E ratio of 15.0, the difference between the U.S. and Japanese interest rates, and the difference in GDP growth rates.
This means that if the difference in GDP growth between Japan and the U.S. in 2022 is 4.91 points larger than the OECD forecast (Japan is revised downward or the U.S. is revised upward), or if the current year's forecast PER of the Nikkei Index stocks is around 56.7, or if the Nikkei Index is around 122, 470 yen, the Nikkei Index will be at the same level as the current Nikkei Index price. 470 yen, the Japanese and U.S. markets will be in equilibrium, and the Japanese market will be undervalued by about 90,090 yen in the medium to long term..

 

From a fundamental perspective, the Japanese market can be said to be less attractive than the U.S. market by ¥90,090. Weakness in the Japanese market was magnified last week.

 

[Conditions for Nikkei average rise]

In the future, the following assumptions are necessary for the Nikkei average to rise further.

①    Rising US market

②　Increase in profit forecast for the current fiscal year above the previous year's level

③ Further depreciation of the yen due to the widening interest rate gap between Japan and the U.S.

④ Upward revision of Japan's 2023 GDP estimate (now +3.5%) by OECD

⑤ Foreign investors over-buying

 

Looking at recent movements

①    Last week's NYDow's weekly chart was a negative line. The daily chart is above the 200-day line and above the clouds of the Ichimoku Kinko Hyo. The NASDAQ has a negative weekly trend. The daily price is above the 200-day line and above the Ichimoku cloud. This week, we will focus on whether or not the NY Dow can return above the 25-day line.

②    As a result of the announcement of quarterly financial results, the forecasted ROE for the Nikkei225 index is +9.0%, the same level as three months ago. The profit growth rate was +2.1%, down -0.9 percentage points from three months ago.

③    U.S. long-term interest rates rose and the interest rate differential between the U.S. and Japan widened from 3.45 to 3.65, but the dollar moved toward yen appreciation in the range of ¥144 to ¥142. The dollar index rose -0.64% for the week.

④    The OECD's nominal GDP growth rate for Japan and the U.S. in 2024 is expected to be +2.96% for Japan and +3.40% for the U.S., so the Japanese market is 0.44 percentage points inferior in this aspect.

⑤    The fourth week of June was overbought; the first week of July was likely oversold, and this week is expected to be oversold. Of the five points last week, ① and ③ were bearish. ①②③⑤ are expected to have an impact.

 

[Technical viewpoint]

Looking at the Japanese market from a technical perspective, it is undervalued by 2.6 point (about 840 yen when converted to the Nikkei 225) in the medium to long term in terms of the difference in the 200-day divergence rate from the NASDAQ. On the other hand, in terms of the difference in 200-day divergence from the NYDow, it is overvalued by 12.0 points in the medium to long term (about 3890 yen, which is calculated into the Nikkei 225).

 

The strength of the Japanese market versus the New York Dow narrowed during the week. The VIX, a measure of U.S. market volatility, rose slightly to 14.8 for the week. The Nikkei VI rose to 20.3 for the week. The U.S. market is still optimistic, while the Japanese market is pessimistic, suggesting that the U.S. market is still optimistic and the Japanese market is pessimistic.

 

The Nikkei 225 is below the 9-day and 25-day lines. This is a "red light" for the short-term trend.

The Nikkei 225 is above the Ichimoku Kinko Chart cloud. The Nikkei 225's overall divergence was +19.0%, and its divergence from the 200-day moving average was +13.9%. 3 factors are positive, indicating a "green light" for the medium-term trend.

 

In the US market, the NYDow is below 9-day line and 25-day line but above 200-day line. It is above the clouds of the Ichimoku Kinko Chart. NASDAQ is below 9-day line and 25-day line and 200-day line. It is above the clouds of the Ichimoku Kinko Chart.

It is a “yellow light” in the short term and a “green light” in the medium term.

 

[Outlook for this week]

Looking at the U.S. market from a fundamental perspective, concerns about a global economic slowdown due to the spread of the new coronavirus have receded, but risk factors include inflation and rising interest rates due to the Russia-Ukraine war and economic slowdown due to energy shortages and deteriorating political conditions in the EU, U.S.-China trade friction, financial market turmoil caused by the bursting of the Chinese real estate bubble and credit contraction, and geopolitical risks in the Middle East and East Asia.

 

Recent LIBOR rates have been on the rise, and we continue to be wary of a resurgence of financial instability.

 

Looking at the technical aspects, the U.S. market is in a medium-term up trend and a short-term no trend. The Japanese market is in a medium-term up trend, and the short-term is down trend.

 

Analysis of the foreign exchange market shows that the yen has been weakening since January 2023. This week, we expect the yen to be in the range of 143 to 140 yen.

 

Of central interest in the U.S. this week will be the Consumer Price Index for June and speeches by several Fed officials. In addition, investors will focus on second quarter earnings, the University of Michigan Consumer Confidence Index, producer prices, and import/export prices. In addition, the Bank of Canada, the Reserve Bank of New Zealand, and the Korean Central Bank will announce monetary policy. In addition, China, India, and Russia will release their inflation rates for June. Other important releases include China's trade data and new yuan-denominated loans, Germany's ZEW business sentiment index, the UK's May GDP growth and labor statistics, and Australia's business and consumer confidence.

Last week, the Nikkei 225 fell below its assumed range. The upside was about 570 yen below the assumed line and the downside was about 620 yen below the assumed line.

This week, the Nikkei 225 is expected to move between the Bollinger Band -1σ on the upside (currently around 32380 yen) and the Bollinger Band -3σ on the downside (currently around 31240 yen).

This week is likely to be influenced by the results of the Consumer Price Index and other factors. However, volatility is on the rise in both the U.S. and Japanese markets, and the market environment is likely to remain soft.

Outlook for the Nikkei average this week [2-July 2023]

 [Fundamental viewpoint]

In the U.S. markets last week, stock indexes rose for the week as both concerns about the health of banks and inflation fears receded.

Weekly change NY Dow: +2.02% NASDAQ: +2.19% S&P 500: +2.35%.

                                       

On the other hand, medium- to long-term risks include concerns about the prolonged conflict in Ukraine, energy costs, financial instability and global economic slowdown due to rising interest rates, and the collapse of the real estate bubble and economic slowdown in China. This also raises concerns about the arrival of stagflation. In addition, geopolitical risks in East Asia and the Middle East continue to require attention.

The difference in the yield spread between the Japanese and U.S. markets is that the Japanese market is 4.51 points cheaper than the U.S. market, considering the announced OECD nominal GDP forecast for 2024. The reason for the undervaluation is the difference between the S&P 500's PER of 19.8 and the Nikkei 225's expected PER of 15.3 and the current fiscal year, as well as the difference in interest rates and GDP growth between the U.S. and Japan.

This means that if the GDP growth rate difference between Japan and the U.S. in 2021 expands by another 4.51 percentage points compared to the OECD forecast (Japan is revised downward or the U.S. is revised upward), or if the PER of the Nikkei 225 stocks for the current fiscal year is about 49.0 if the Nikkei 225 is about 106,520 yen compared to the current price of the Nikkei 225. The Japanese market is undervalued by about 73,330 yen in the medium to long term.

 

From a fundamental perspective, the Japanese market can be said to be less attractive than the U.S. market by ¥73,330. Last week, the weakness of the Japanese market diminished.

 

[Conditions for Nikkei average rise]

In the future, the following assumptions are necessary for the Nikkei average to rise further.

①    Rising US market

②　Increase in profit forecast for the current fiscal year above the previous year's level

③ Further depreciation of the yen due to the widening interest rate gap between Japan and the U.S.

④ Upward revision of Japan's 2023 GDP estimate (now +3.5%) by OECD

⑤ Foreign investors over-buying

 

Looking at recent movements

①    Last week's NYDow's weekly chart was a positive line. The daily chart is above the 200-day line and above the clouds of the Ichimoku Kinko Hyo. The NASDAQ has a positive weekly trend. The daily price is above the 200-day line and above the Ichimoku cloud. This week, we will focus on whether or not the NY Dow can keep above the 25-day line.

②    As a result of the announcement of quarterly financial results, the forecasted ROE for the Nikkei225 index is +9.0%, the same level as three months ago. The profit growth rate was +2.4%, down -0.8 percentage points from three months ago.

③    U.S. long-term interest rates rose and the interest rate differential between the U.S. and Japan widened from 3.38 to 3.45, moving the dollar against the yen in the range of ¥142 to ¥145. The dollar index rose +0.05% for the week.

④    The OECD's nominal GDP growth rate for Japan and the U.S. in 2024 is expected to be +2.96% for Japan and +3.40% for the U.S., so the Japanese market is 0.44 percentage points inferior in this aspect.

⑤    The June 3 week was oversold; the June 4 week was likely overbought, and this week is expected to be overbought. Of the five points last week, ① and ③ were bullish. ①②③⑤ are expected to have an impact.

 

[Technical viewpoint]

Looking at the Japanese market from a technical perspective, it is undervalued by 1.0 point (about 330 yen when converted to the Nikkei 225) in the medium to long term in terms of the difference in the 200-day divergence rate from the NASDAQ. On the other hand, in terms of the difference in 200-day divergence from the NYDow, it is overvalued by 13.0 points in the medium to long term (about 4310 yen, which is calculated into the Nikkei 225).

 

The strength of the Japanese market versus the NY Dow narrowed during the week. The VIX, a measure of U.S. market volatility, rose slightly to 13.6 for the week. The Nikkei VI declined to a weekly low of 19.1. Optimism in the U.S. market suggests that the Japanese market is somewhat overheated.

 

The Nikkei 225 is above the 9-day and 25-day lines. This is a "green light" for the short-term trend.

The Nikkei 225 is above the Ichimoku Kinko Chart cloud. The Nikkei 225's overall divergence was +30.0%, and its divergence from the 200-day moving average was +17.3%. 3 factors are positive, indicating a "green light" for the medium-term trend.

 

In the US market, the NYDow is above 9-day line and 25-day line and 200-day line. It is above the clouds of the Ichimoku Kinko Chart. NASDAQ is above 9-day line and 25-day line and 200-day line. It is above the clouds of the Ichimoku Kinko Chart.

It is a “green light” in the short term and a “green light” in the medium term.

 

[Outlook for this week]

Looking at the U.S. market from a fundamental perspective, concerns about a global economic slowdown due to the spread of the new coronavirus have receded, but risk factors include inflation and rising interest rates due to the Russia-Ukraine war and economic slowdown due to energy shortages and deteriorating political conditions in the EU, U.S.-China trade friction, financial market turmoil caused by the bursting of the Chinese real estate bubble and credit contraction, and geopolitical risks in the Middle East and East Asia.

 

Recent LIBOR rates have been on the rise, and we continue to be wary of a resurgence of financial instability.

 

Looking at the technical aspects, the U.S. market is in a medium-term up trend and a short-term up trend. The Japanese market is in a medium-term up trend, and the short-term is up trend.

 

Analysis of the foreign exchange market shows that the yen has been weakening since January 2023. This week, we expect the yen to be in the range of 144 to 146 yen.

 

In the U.S. this week, the employment report and FOMC minutes will be most closely watched. In addition, the ISM Manufacturing and Services PMIs, Factory Orders, and Trade Statistics will be released. Outside of the U.S., manufacturing PMIs from India, Russia, South Korea, and Canada, as well as inflation rates from South Korea, Turkey, and Mexico will also be of interest. In addition, Australia's interest rate policy decision, Canada's employment data, China's services and manufacturing PMIs, and Japan's Bank of Japan's Tankan will also be of interest to investors.

Last week, the Nikkei average moved above its assumed range. The upper price was about 160 yen above the assumed line and the lower price was about 1,020 yen above the assumed line.
This week, the Nikkei 225 is expected to move between the Bollinger Band +2σ (currently around 34260 yen) on the upside and the 25-day line (currently around 32560 yen) on the downside.
The price is expected to move between the Bollinger Band +2σ (currently around 34260 yen) and the 25-day line (currently around 32560 yen).

This week will be influenced by the employment report and the results of the FOMC meeting minutes, among other things.

However, volatility in the U.S. market is decreasing and the market environment is likely to remain optimistic. Japanese markets have an anomaly that they tend to rise at the beginning of the month, and a bull market is expected.