[Fundamental viewpoint]
Last week on the US markets, stock indices declined over the week amid concerns over overheating in AI investment and observations that economic indicators pointed to underlying economic resilience, suggesting the Federal Reserve had no urgent need to cut interest rates.
Weekly change rate: NY Dow: -0.15%, NASDAQ: -0.65%, S&P 500: -0.31%.
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 1.99 points undervalued for the Japanese market when the OECD's nominal GDP forecast for 2026 is taken into account. The reason for the undervaluation is the difference between the S&P 500's P/E ratio of 23.7 and the Nikkei 225's P/E ratio of 18.1 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 2026 relative to the current price of the Nikkei 225 will be 1.99 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 28.4 Or, the Nikkei 225 will be around 70,940 yen.
As a result, the Japanese market is undervalued by about 25,59 yen in the medium to long term.
From a fundamental perspective, the Japanese market could be said to be approximately ¥25,590 less attractive than the US market. Last week, the weakness in the Japanese market narrowed somewhat.
[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 negative last week. The daily is above the 200-day line and above the clouds on the Ichimoku Chart. The weekly leg of the NASDAQ was negative. 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 keep above the 25-day line.
② As a result of the financial results announcement, the ROE forecast for Nikkei 225 stocks was +8.9%. This is a deterioration of 0.2 percentage points compared to three months ago. Profit growth was -6.4%. This is a deterioration of 2.8 percentage points compared to three months ago.
③ US long-term interest rates rose, widening the interest rate differential between Japan and the US from 2.50 to 2.54. Consequently, the dollar-yen exchange rate moved slightly towards yen depreciation, fluctuating within the range of 147 to 149 yen per dollar. The dollar index rose by +0.55% over the week.
④ The OECD's nominal GDP growth rate for Japan and the U.S. in 2026 is expected to be +2.5% for Japan and +4.3% for the U.S., so the Japanese market is 1.8 percentage points inferior in this aspect.
⑤ The third week of September saw net selling, the fourth week likely saw net selling, and net selling is anticipated this week. Last week, out of the five points, ① was bearish and ③ was bullish.
[Technical viewpoint]
From a technical perspective, the Japanese market is overvalued by 1.1 percentage points (equivalent to approximately ¥500 for the Nikkei average) relative to the NASDAQ's 200-day moving average deviation rate on a medium-to-long-term basis. Conversely, it is overvalued by 9.0 percentage points (equivalent to approximately ¥4,080 for the Nikkei average) relative to the NY Dow's 200-day moving average deviation rate over the same timeframe.
The Japanese market is performing more strongly than the NY Dow and NASDAQ. The VIX, an indicator of volatility in the US market, fell to 15.3 on a weekly basis. The Nikkei VI rose to 26.0 on a weekly basis. The US market is optimistic, while the Japanese market is in a state of “mood of suspicion”.
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 +29.3%, while the 200-day moving average divergence was +16.0%. As all three factors are positive, the medium-term trend has a "green light".
In the US market, the NY Dow is above the 9-day line and 25-day and 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 ‘green 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, concerns about an economic downturn remain in the short 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 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 turned stronger since topping out at 156 yen, which was reached in January 2025. This week, the yen is expected to be between 148 and 151 yen.
This week in the US markets, the US employment report will be the main focus. Other key economic indicators to be released include the ADP employment report, the JOLTS job openings statistics, the September ISM Manufacturing PMI, and the ISM Non-Manufacturing PMI. Globally, the eurozone inflation data, China's PMI, and Australia's policy interest rate decision are scheduled.
Last week, the Nikkei average exceeded the anticipated range. The upper limit surpassed the projected level by ¥190, while the lower limit exceeded it by ¥1,640.
This week, the Nikkei average is expected to move within a projected range: the upper limit at the Bollinger Band +2σ (currently around ¥46,230) and the lower limit at the 25-day moving average (currently around ¥43,720).
This week, the Nikkei average is likely to continue its volatile trend, driven by concerns over overheating in AI-related stocks and the impact of forthcoming US economic indicators on the pace of interest rate cuts.
