2025年2月2日日曜日

Outlook for the Nikkei average this week [2 February 2024]

 [Fundamental viewpoint]

Stock indices were mixed during the week in the US market last week, with good-performing stocks being bought, while tech stocks were sold off due to the DeepSeek shock.

Weekly volatility NY Dow: +0.27%, NASDAQ: -1.64%, S&P 500: -1.00%.

                                                                                                 

On the other hand, medium- to long-term risks include concerns about the prolonged conflict in Ukraine, energy costs, 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. In addition, 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 3.95 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 22.3 and the Nikkei 225's P/E ratio of 16.1 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 3.95 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 44.1 Or, the Nikkei 225 will be around 108,540 yen.

As a result, the Japanese market is undervalued by about 68,970 yen in the medium to long term.

 

Fundamentally, the Japanese market can be said to be about 68,970 yen less attractive than the US market. Weakness in the Japanese market narrowed last week.

 

[Conditions for Nikkei average rise]

In the future, the following assumptions are necessary for the Nikkei average to rise further.

    Rising US market

② Increase in profit forecast for the current fiscal year above the previous year's level

Further depreciation of the yen due to the widening interest rate gap between Japan and the U.S.

Upward revision of Japan's 2025 GDP estimate (now +3.3%) by OECD

Foreign investors over-buying

 

Looking at recent movements

    The weekly leg of the NYDow was positive last week. The daily chart is above the 200-day line and above the clouds of the Ichimoku Chart. The NASDAQ's weekly leg was positive last week. The daily chart is above the 200-day line and above the equilibrium cloud. This week, the focus will be on whether or not the NY Dow is able tokeep above the 25-day line.

    As a result of the earnings announcements, the forecasted ROE of the Nikkei 225 index stood at +9.1%, an improvement of +0.3 percentage points compared to three months ago. The profit growth rate was +2.5%, an improvement of +0.9 percentage points compared to three months ago.

    Long-term interest rates in the US fell and the interest rate differential between the two countries narrowed from 3.41 to 3.31, with the dollar moving in the direction of a stronger yen in the range of 156 to 153 yen. The Dollar Index rose +0.96% on the week.

    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.

    The third week of January was overbought, the fourth week of January was likely overbought and this week is expected to be overbought. Of the five points, was bearish last week.

 

[Technical viewpoint]

Looking at the Japanese market from a technical perspective, it is undervalued by 5.8 points in the medium to long term in terms of the difference in the 200-day divergence rate from the NASDAQ (about 2300 yen when converted to the Nikkei 225). On the other hand, the difference in the 200-day divergence from the NYDow is undervalued by 5.2 points in the medium to long term (about 2060 yen when calculated for the Nikkei 225).

 

Japanese markets are weak against the NY Dow and NASDAQ. The VIX, a measure of US market volatility, rose to 16.4 for the week. The Nikkei VI rose to 20.4 for the week. The US market is optimistic and the Japanese market is somewhat volatile.

 

The Nikkei 225 is above the 9-day and 25-day lines. The short-term trend has a green light’.

The Nikkei 225 is above the equilibrium cloud. The overall divergence is +4.3% and the divergence from the 200-day moving average is +2.4%. As these three factors are negative, a ‘green light’ has been illuminated for the medium-term trend.

 

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

The NASDAQ is below the 9-day, and above 25-day and 200-day lines. It is also above the clouds on the Ichimoku Chart.

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

 

[Outlook for this week]

Looking at the US market from a fundamental perspective, recessionary fears are receding in the near-term. Other risk factors include inflation and rising interest rates due to the Russia-Ukraine war, economic recession due to energy shortages and deteriorating political conditions in the EU, U.S.-China trade friction, financial market turmoil caused by the bursting of China's real estate 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 no trend and a short-term up trend. The Japanese market is in a medium-term down trend, and the short-term is down trend.

 

Analysis of the foreign exchange market shows that the yen has turned weaker since bottoming out at the 140 yen level, which was reached in September 2024. This week, the yen is expected to fall to the ¥155to ¥153range.

 

This week, the US markets will be dominated by the jobs report, while the ISM PMI will provide new insights into the economy. Also in focus will be President Trump's policies, particularly the implementation of 25% tariffs on imports from Canada and Mexico, which will take effect on 1 February. In addition, Amazon and Alphabet, PepsiCo, AMD, Pfizer, Walt Disney and Qualcomm will announce their quarterly results. Globally, the focus will be on country PMIs, Eurozone inflation and German manufacturing orders.

 

Last week, the Nikkei 225 fell below its expected range. The upside was below ¥650 and the downside was below ¥930.

This week, the Nikkei 225 is expected to move between the Bollinger Band +1σ (currently around JPY 39870) on the upside and the Bollinger Band -1σ (currently around JPY 38830) on the downside.

             

This week is likely to be influenced by President Trump's policies and earnings announcements, but the Nikkei 225 is likely to remain firm, albeit somewhat volatile.

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