Outlook for the Nikkei average this week [16 November 2025]

 [Fundamental viewpoint]

Last week on the US markets, stocks that had been lagging behind saw buying interest, while concerns over the high valuations of AI-related shares and diminishing expectations for further interest rate cuts by the Federal Reserve contributed to mixed weekly performance for the stock indices.

Weekly percentage change: NY Dow: +0.34%, NASDAQ: -0.45%, S&P 500: +0.08%..

                                                                                                 

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 1.61 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 23.1 and the Nikkei 225's P/E ratio of 18.9 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 1.61 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 27.2 Or, the Nikkei 225 will be around 72,410 yen.

As a result, the Japanese market is undervalued by about 22,030 yen in the medium to long term.

 

From a fundamental perspective, the Japanese market could be said to be approximately 22,030 yen less attractive than the US market. Last week, the weakness in the Japanese market eased 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 2026 GDP estimate (now +2.5%) 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    Following the announcement of financial results, the projected ROE for Nikkei 225 constituent companies stands at +8.8%. This remains unchanged from three months ago. The profit growth rate is -4.2%, representing an improvement of +2.2 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 2.43 to 2.45. Consequently, the dollar-yen exchange rate moved within the range of 153 to 155 yen, trending towards a weaker dollar. The dollar index declined by -0.28% 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 first week of November saw net selling, the second week of November was likely to have seen net selling, and net selling is expected this week. Last week, out of the five points, ① was a bearish factor.

 

[Technical viewpoint]

From a technical perspective, the Japanese market is overvalued by 10.3 percentage points (equivalent to approximately ¥5190 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 19.1 percentage points (equivalent to approximately ¥8160 for the Nikkei average) relative to the NY Dow's 200-day moving average deviation rate over the same timeframe.

 

The Japanese market is showing greater strength than the NY Dow and NASDAQ. The VIX, an indicator of volatility in the US market, rose to 19.6 on a weekly basis. The Nikkei VI fell to 31.2 on a weekly basis. The US market is in a state of ‘mood of suspicion’, while the Japanese market is in a state of ‘acrophobia’.

 

The Nikkei average is below the 9-day and above 25-day moving averages. A yellow light is flashing for the short-term trend.

The Nikkei average is above the cloud in the Ichimoku Kinko Hyo chart. The overall deviation rate stands at +35.4%, while the deviation rate from the 200-day moving average is +23.8%. With all three factors positive, a green light is flashing for the medium-term trend.

 

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

The NASDAQ is below the 9-day line and 25-day and above 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, 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 indicates that the yen has shifted towards depreciation, with the low of 139 yen reached in April 2025 marking the bottom. This week, the yen is expected to trade between the 153 and 156 yen per dollar range.

 

This week in the US markets, following the end of the prolonged government shutdown, key private indicators to watch include the S&P Flash PMI, existing home sales, the housing market index, and the ADP weekly employment report. Markets will also focus on NVIDIA's earnings as fresh material for assessing the overheating sentiment in AI-related stocks, and on the results from Walmart, Target, and Home Depot to gain insights into consumer purchasing power. On the monetary policy front, the FOMC minutes will be closely watched. Globally, PMIs for the eurozone, UK, and Japan will be released, along with Japan's third-quarter GDP and October consumer price index (CPI).

 

Last week, the Nikkei average exceeded the anticipated range. The upper limit surpassed the projected level by ¥560, while the lower limit exceeded it by ¥1,830.

This week, the Nikkei average is expected to move within a projected range: the upper limit at the Bollinger Band +1σ (currently around ¥51,260) and the lower limit at the Bollinger Band -1σ (currently around ¥48,420).

             

This week, the Nikkei average is likely to remain subdued unless concerns over the high valuations of Japanese and US AI-related stocks and the retreating prospects of further interest rate cuts by the Federal Reserve are dispelled.