[Fundamental viewpoint]
In the US markets last week, stock indices rose for the week as investor sentiment improved on speculation that the Trump administration had eased its stance on China in its trade policy.
Weekly change NY Dow: +2.48%, NASDAQ: +6.73%, S&P 500: +4.59.
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 3.82 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 19.0 and the Nikkei 225's P/E ratio of 14.5 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 3.85 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 32.5 Or, the Nikkei 225 will be around 80,070 yen.
As a result, the Japanese market is undervalued by about 44,370 yen in the medium to long term.
Fundamentally, the Japanese market can be said to be about 44,370 yen less attractive than the US market. Weakness in the Japanese market narrowed somewhat 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 positive 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 positive. 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 estimated ROE of the Nikkei 225 index stood at +9.1%, an improvement of 0.1 percentage points compared to three months ago. The profit growth rate was +7.3%, an improvement of +5.2 percentage points compared to three months ago.
③ Although long-term interest rates in the US declined and the interest rate differential between the two countries narrowed from 3.05 to 2.91, the dollar moved in a weaker direction against the yen in the range of ¥139 to ¥144. The Dollar Index fell +0.18% 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 third week of April was overbought, the fourth week of April was likely overbought and this week is expected to be overbought. Of the five points, ① and ③ were bullish last week.
[Technical viewpoint]
Looking at the Japanese market from a technical perspective, it is undervalued by 1.0 point in the medium to long term in terms of the difference in 200-day divergence from the NASDAQ (about 360 yen in terms of the Nikkei 225). On the other hand, the difference in 200-day divergence from the NYDow is undervalued by 1.2 points in the medium to long term (about 430 yen in terms of the Nikkei 225).
Japanese markets are weak against the NY Dow and NASDAQ. The VIX, a measure of US market volatility, fell to a weekly low of 24.8. The Nikkei VI fell to a weekly low of 28.7. Both the US and Japanese markets are in a state of ‘doubt’..
The Nikkei 225 is above the 9-day and 25-day lines. The short-term trend has a "green light".
T The Nikkei 225 is below the equilibrium cloud. The overall divergence is -8.4% and the divergence from the 200-day moving average is -6.3%. 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 above the 9-day line and below 25-day and 200-day lines. It is below the clouds of the equilibrium chart.
The NASDAQ is above the 9-day line and 25-day and below 200-day lines. It is below the clouds on the Ichimoku Chart.
This is a ‘yellow light’ in the short term and a ‘red light’ in the medium term.
[Outlook for this week]
Looking at the US market from a fundamental perspective, recessionary fears are amplified in the near-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 down trend and a short-term no trend. The Japanese market is in a medium-term down 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 142 and 145 yen.
In the US markets this week, investors will be keeping a close eye on developments in the ongoing US-China trade dispute. In addition, major companies such as Apple, Microsoft, Amazon and Meta will release their quarterly results. In terms of key economic indicators, attention will focus on the preliminary GDP growth figures for the first quarter of 2025, employment data, PCE inflation data and the ISM manufacturing PMI. Globally, preliminary GDP and inflation figures for the Eurozone, monetary policy in the , and Chinese PMIs will be released.
Last week, the Nikkei 225 remained within the expected range. The upper price was below ¥830 and the lower price was above ¥850.
This week, the Nikkei 225 is expected to move between the Bollinger Band +2σ (currently around JPY 38410) on the upside and the 25-day line (currently around JPY 34930) on the downside.
This week, the Nikkei 225 will be interested in how far it can diverge above the 25-day line and the depth of the second bottom.
