Outlook for the Nikkei average this week [11 August 2025]

 [Fundamental viewpoint]

Last week, the US market saw stock indices rise over the week on speculation that aggressive monetary easing would support the economy, based on expectations of a rate cut by the Federal Reserve in September.

Weekly change: NY Dow: +1.35%, NASDAQ: +3.87%, S&P 500: +2.43%.

                                                                                                 

On the other hand, medium- to long-term risks include concerns about a prolonged conflict in Ukraine, tariff policies of the U.S. administration, 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. Furthermore, 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 3.34 points undervalued for the Japanese market when the OECD's nominal GDP forecast for 2025 is taken into account. The reason for the undervaluation is the difference between the S&P 500's P/E ratio of 23.8 and the Nikkei 225's P/E ratio of 17.1 the difference between the U.S. and Japanese interest rates, and the difference in GDP growth rates.

In order for the U.S. and Japanese markets to be in equilibrium, the following conditions must be met.

The difference in GDP growth between Japan and the U.S. in 2025 relative to the current price of the Nikkei 225 will be 3.34 percentage points larger than the OECD forecast. (Japan is revised downward or the U.S. is revised upward). Or the current year's forecast PER for stocks in the Nikkei Stock Average becomes about 39.9 Or, the Nikkei 225 will be around 97,500 yen.

As a result, the Japanese market is undervalued by about 55,680 yen in the medium to long term.

 

Fundamentally speaking, the Japanese market is about 55,680 yen less attractive than the US market. Last week, the weakness of the Japanese market expanded slightly.

 

[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 2025 GDP estimate (now +3.3%) by OECD

⑤ Foreign investors over-buying

 

Looking at recent movements

①    The weekly leg of the NYDow was positive last week. The daily is above the 200-day line and above the clouds on the Ichimoku Chart.2) The weekly leg of the NASDAQ was positive. The daily is above the 200-day line and above the clouds on the Ichimoku Chart. This week, the focus will be on whether the NY Dow can return above the 25-day line.

②    As a result of the financial results announcement, the ROE forecast for Nikkei 225 constituent stocks was +8.9%. This is an improvement of +0.2 percentage points compared to three months ago. Profit growth was -6.1%. This is a deterioration of -5.6 percentage points compared to three months ago.

③    Long-term interest rates in the United States rose, widening the interest rate differential between Japan and the United States from 2.67 to 2.80, and the dollar-yen exchange rate moved in the direction of yen depreciation, ranging from 146 yen to 148 yen. The dollar index fell 0.41% over the week.

④    The OECD's nominal GDP growth rate for Japan and the U.S. in 2025 is expected to be +3.3% for Japan and +4.4% for the U.S., so the Japanese market is 1.1 percentage points inferior in this aspect.

⑤    The fifth week of July saw net selling, while the first week of August likely saw net buying, and net buying is expected this week. Last week, points ① and ③ were bullish factors out of the five points.

 

[Technical viewpoint]

From a technical perspective, the Japanese market is undervalued by 3.0 points in the medium to long term in terms of the difference in the 200-day divergence rate from the NASDAQ (about 1250 yen when converted to the Nikkei 225). On the other hand, the difference in the 200-day divergence from the NYDow is overvalued by 6.3 point in the medium to long term (about 2630 yen when converted to the Nikkei 225).

 

The Japanese market is stronger than the NY Dow but weaker than the NASDAQ. The VIX, an indicator of volatility in the US market, fell to 15.2 for the week. The Nikkei VI rose to 24.7 for the week. The US market is optimistic, while the Japanese market is in a state of ‘suspicion and distrust.’’

 

The Nikkei 225 is above the 9-day line and the 25-day line. The short-term trend is now showing a “green signal.

The Nikkei 225 is above the Ichimoku Kinko's Kumo (equilibrium) cloud. The overall divergence was +21.0%, while the 200-day moving average divergence was +9.2%. As all three factors are positive, the medium-term trend has a "green light".

 

In the US market, the NY Dow is below the 9-day line and 25-day and above 200-day lines. It is above the clouds of the Ichimoku chart.

The NASDAQ is above the 9-day line and 25-day and 200-day lines. It is above the clouds above the Ichimoku 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 US market from a fundamental perspective, recessionary fears are amplified in the near-term. Other risk factors include inflation and rising interest rates due to the Russia-Ukraine war, recession due to energy shortages and deteriorating political conditions in the EU bloc, US-China trade friction, financial market turmoil caused by the bursting of China's property bubble and credit crunch, and expanding geopolitical risks in the Middle East.

 

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 up trend.

 

Analysis of the foreign exchange market shows that the yen has turned stronger since topping out at 156 yen, which was reached in January 2025. This week, the yen is expected to be between 147 and 144 yen.

 

This week in the US market, attention will focus on whether there will be any progress toward a US-China agreement on tariffs by the August 12 deadline. In addition, attention will also focus on the meeting between President Trump and President Putin on the 15th to explore solutions to the Ukraine conflict. In the U.S., key economic indicators such as the Consumer Price Index (CPI), Producer Price Index (PPI), retail sales, industrial production, and the University of Michigan Consumer Sentiment Index (flash estimate) will be released. Globally, China's retail sales, as well as second-quarter GDP figures for the Eurozone, Japan, and the UK, will also be announced..

 

Last week, the Nikkei Average exceeded the expected range. The upper limit exceeded 1,650 yen, and the lower limit exceeded 960 yen.

This week, the Nikkei Average is expected to move between the upper limit of the Bollinger Band +3σ (currently around 42,590 yen) and the lower limit of the Bollinger Band +1σ (currently around 41,120 yen).

             

This week, the Nikkei Average is likely to challenge its all-time high. Technically, it is overbought, but if it can break through the all-time high, momentum will increase and further gains can be expected.