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

 [Fundamental viewpoint]

In the US market last week, stock indices fell over the week on concerns about an economic slowdown due to escalating trade frictions, with Canada and the EU indicating countermeasures to the imposition of tariffs by the US administration.

Weekly volatility NY Dow: -3.07%, NASDAQ: -2.43%, S&P 500: -2.27%.

                                                                                                 

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 3.51 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 20.5 and the Nikkei 225's P/E ratio of 15.0 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 3.51 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 31.5 Or, the Nikkei 225 will be around 78,080 yen.

As a result, the Japanese market is undervalued by about 41,030 yen in the medium to long term.

 

Fundamentally, the Japanese market can be said to be about 41,030 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.

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 below the 200-day line and below the clouds on the Ichimoku Chart. The weekly leg of the NASDAQ was negative. The daily is below the 200-day line and below the clouds of the Ichimoku Chart. This week, the focus will be on whether or not the NY Dow is able to return above the 25-day line.

②    As a result of the earnings announcements, the forecasted ROE of the Nikkei 225 companies was +9.2%, the same level as three months ago. In addition, the profit growth rate was +7.1%, an improvement of +4.9 percentage points compared to three months ago.

③    Long-term interest rates in the US rose and the interest rate differential between the US and Japan widened from 2.79 to 2.81, causing the USD/JPY to move in a weaker direction in the range of ¥146 to ¥149. The Dollar Index fell -0.16% on 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 March was oversold, the second week of March was likely oversold and this week is expected to be oversold. Of the five points, ① was bearish last week.

 

[Technical viewpoint]

Looking at the Japanese market from a technical perspective, it is undervalued by 0.7 points in the medium to long term in terms of the difference in the 200-day divergence rate from the NASDAQ (about 260 yen when converted to the Nikkei 225). On the other hand, the difference in the 200-day divergence from the NYDow is undervalued by 0.5 points in the medium to long term (about 190 yen when calculated for the Nikkei 225).

 

Japanese markets remain weak against the NY Dow and NASDAQ. The VIX, a measure of US market volatility, fell to a weekly low of 21.8. The Nikkei VI fell to a weekly low of 24.7. Both the US and Japanese markets are volatile.

 

The Nikkei 225 is below the 9-day and 25-day lines. The short-term trend has a ‘red light’.

The Nikkei 225 is below the equilibrium cloud. The overall divergence is -11.2% and the divergence from the 200-day moving average is -4.0%. As these three factors are negative, a ‘red light’ has been illuminated for the medium-term trend.

 

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

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

This is a ‘red 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 down trend and a short-term down 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 stronger since topping out at 156 yen, which was reached in January 2025. This week, the yen is expected to be between 149 and 146 yen.

 

This week in the US markets, the Fed's interest rate policy will be released along with interest rate forecasts. Key US data will include indicators such as retail sales, housing starts, industrial production and existing home sales. Globally, interest rate decisions are expected for Japan, China and the UK. Other notable data will include Japan's inflation rate, China's retail sales, industrial production and house price indexes, the UK's unemployment rate, Germany's ZEW business confidence and consumer confidence in the euro area.

 

Last week, the Nikkei 225 fell below its expected range. The upside was below ¥850 and the downside was below ¥710.

This week, the Nikkei 225 is expected to move between the 25-day line (currently around JPY 38110) on the upside and Bollinger Band -2σ (currently around JPY 37020) on the downside.

             

This week, a self-sustaining rebound from the overdraft at the beginning of the week is likely to be expected, but this will require new material to lead to a full-scale rebound.