Outlook for the Nikkei average this week [12 January 2026]

 [Fundamental viewpoint]

Last week in U.S. markets, the large-scale attack on Venezuela and the capture of President Maduro did not trigger risk-off sentiment. Instead, the December employment report, which showed resilience in the labor market, was well-received, leading stock indices to rise for the week.

Weekly Change: NY Dow: +2.32%, NASDAQ: +1.88%, S&P 500: +1.57%.

                                                                                                 

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 Latin America and East Asia, the Middle East continue to require attention..

The difference in the yield spread between the Japanese and U.S. markets is 1.07 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 23.2 and the Nikkei 225's P/E ratio of 19.7 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 1.07 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 24.9 Or, the Nikkei 225 will be around 65,740 yen.

As a result, the Japanese market is undervalued by about 13,800 yen in the medium to long term.

 

From a fundamental perspective, the Japanese market could be said to be approximately 13,890yen less attractive than the US market. Last week, the 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 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 positive 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 positive. The daily is above the 200-day line and 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 earnings announcements, the projected ROE for Nikkei 225 constituents stands at +8.9%. This represents a 0.1 percentage point improvement compared to three months ago. The profit growth rate is -3.2%, marking a 3.1 percentage point improvement compared to three months ago.

③    U.S. long-term interest rates declined, and while the interest rate differential between Japan and the U.S. narrowed from 2.14 to 2.09, the dollar-yen exchange rate moved toward a weaker yen within the range of the 156-yen level to the 158-yen level. The dollar index rose +0.72% for 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 fifth week of December likely saw net selling, while the first week of January likely saw net buying. This week is expected to see net buying. Last week, out of the five points, ① and ③ were bullish factors.

 

[Technical viewpoint]

From a technical perspective, the Japanese market is overvalued by 9.1 percentage points (equivalent to approximately ¥3730 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 10.7 percentage points (equivalent to approximately ¥5560 for the Nikkei average) relative to the NY Dow's 200-day moving average deviation rate over the same timeframe.

 

The Japanese market is stronger than the NY Dow and NASDAQ. The VIX, an indicator of volatility in the U.S. market, remained flat at 14.5 for the week. The Nikkei VI rose to 26.4 for the week. The U.S. market is in an “optimistic” state, while the Japanese market is in a state of “moodiness.”

 

The Nikkei Average is above both the 9-day and 25-day moving averages. A “green light” is lit for the short-term trend.

The Nikkei Average is above the cloud in the Ichimoku Kinko Hyo chart. The overall deviation rate is +29.4%, and the deviation rate from the 200-day moving average is +21.3%. With all three factors positive, a “green light” is lit for the medium-term trend.

 

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 the Ichimoku Chart.

It is a ‘green light’ in the short term and a ‘green light’ in the medium term.

 

[Outlook for this week]

In the U.S. market, key immediate concerns are expected to include the frequency of interest rate cuts by the Federal Reserve this year, the Supreme Court's ruling on the constitutionality of Trump tariffs, and the market impact of advancing protectionist policies.

 

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 157 and 159 yen per dollar range.

 

This week in the U.S. market, the earnings season for major banks begins. Economic indicators to be released include inflation rates, retail sales, the producer price index, and home sales. Globally, revised GDP figures for Germany and the UK, industrial production and trade statistics for the eurozone, trade statistics for China, and Japan's current account balance and machinery orders will be announced.

 

Last week, the Nikkei average exceeded its projected range. The upper limit was surpassed by 660 yen, and the lower limit was exceeded by 590 yen.

This week, the Nikkei average is expected to move within a projected range: the upper limit is the Bollinger Band +3σ (currently around 53,050 yen), and the lower limit is the Bollinger Band +1σ (currently 51,400 yen).

             

This week, the Nikkei average is likely to open at a record high with a significant gain early in the week, depending on the outcome of the House of Representatives dissolution and general election. Futures are already up 1,500 points from the previous day.