[Fundamental viewpoint]
In the US market last week, July's CPI was largely in line with market expectations, easing excessive concerns about inflation and further raising expectations for a rate cut by the Fed in September, causing stock indices to rise for the week.
Weekly change: NY Dow: +1.74%, NASDAQ: +0.81%, S&P 500: +0.94%.
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 3.13 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 24.1 and the Nikkei 225's P/E ratio of 17.8 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 3.13 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 40.1 Or, the Nikkei 225 will be around 97,800 yen.
As a result, the Japanese market is undervalued by about 54,420 yen in the medium to long term.
Fundamentally, the Japanese market is about 54,420 yen less attractive than the US market. Last week, the weakness of the Japanese market eased 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 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 0.3 percentage points compared to three months ago. Profit growth was -6.4%. This is a deterioration of 4.1 percentage points compared to three months ago.
③ Although long-term interest rates in the United States rose, the interest rate differential between Japan and the United States narrowed from 2.80 to 2.76, and the dollar-yen exchange rate moved in the direction of yen appreciation, ranging from 148 yen to 146 yen. The dollar index fell -0.43% 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 first week of August saw net selling, while the second week of August likely saw net buying, and net buying is expected this week. Last week, of the five points, ① was a bullish factor.
[Technical viewpoint]
From a technical perspective, the Japanese market is overvalued by 0.3 points in the medium to long term in terms of the difference in the 200-day divergence rate from the NASDAQ (about 130 yen when converted to the Nikkei 225). On the other hand, the difference in the 200-day divergence from the NYDow is overvalued by 8.5 point in the medium to long term (about 3690 yen when converted to the Nikkei 225).
The Japanese market is stronger than the NY Dow and NASDAQ. The VIX, an indicator of volatility in the US market, fell to 15.1 for the week. The Nikkei VI fell to 24.6 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 +30.1%, while the 200-day moving average divergence was +13.0%. 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 147 and 145 yen.
In the US market this week, Fed Chair Powell will deliver a speech at the Jackson Hole Symposium and may comment on the White House's request for interest rate cuts. In addition, the minutes of the previous FOMC meeting will also be closely watched. In terms of economic indicators, the housing price index, housing starts, and existing home sales will be announced. Globally, attention is likely to focus on the PMI for the eurozone, the UK, and Japan, price data for the UK and Japan, and China's interest rate decision..
Last week, the Nikkei Average remained within the expected range. The upper limit was 70 yen lower than expected, and the lower limit was 680 yen higher than expected.
This week, the Nikkei Average is expected to move between the upper limit of the Bollinger Band +3σ (currently around 44,340 yen) and the lower limit of the Bollinger Band +1σ (currently around 42,050 yen).
This week, the Nikkei Average is expected to fluctuate around the rising Bollinger Band +2σ, and is likely to reach a new high.