Outlook for the Nikkei average this week [13 April 2025]

 [Fundamental viewpoint]

In the US markets last week, the Trump administration's announcement that reciprocal tariffs would be suspended for 90 days in countries and regions other than China led to a sell-off and stock indices rose for the week.

 

Weekly change NY Dow: +4.95%, NASDAQ: +7.29%, S&P 500: +5.70.

                                                                                                 

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 4.52 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 20.2 and the Nikkei 225's P/E ratio of 13.6 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 4.53 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 35.1 Or, the Nikkei 225 will be around 86,780 yen.

As a result, the Japanese market is undervalued by about 53,190 yen in the medium to long term.

 

Fundamentally, the Japanese market can be said to be about 53,190 less attractive than the US market. Weakness in the Japanese market was magnified 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 posittive. 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 index stood at +9.2%, an improvement of 0.1 percentage points compared to three months ago. The profit growth rate was +7.3%, an improvement of +4.8 percentage points compared to three months ago.

③    Although long-term interest rates in the US rose and the interest rate differential between the two countries widened from 2.83 to 3.21, the dollar moved towards a stronger yen in the range of ¥148 to ¥142. The Dollar Index fell +3.02% 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 April was overbought, the second week of April was likely overbought and this week is expected to be overbought. Last week, of the five points, ① was bullish and ③ was bearish.

 

[Technical viewpoint]

Looking at the Japanese market from a technical perspective, it is undervalued by 3.0 points in the medium to long term in terms of the difference in 200-day divergence from the NASDAQ (about 1010 yen when calculated for the Nikkei 225). On the other hand, the difference in 200-day divergence from the NYDow is undervalued by 7.4 points in the medium to long term (about 2,490 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 37.6. The Nikkei VI rose to 44.4 for the week. Both the US and Japanese markets are in a state of ‘extreme fear’.

 

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 -30.6% and the divergence from the 200-day moving average is -12.3%. 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 below 25-day and 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 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 144 and 140 yen.

 

The US market is likely to be very volatile as investors continue to monitor tariff developments. At the same time, the US earnings season is in full swing. In terms of economic indicators, retail sales, industrial production and housing indicators will be released. Globally, China's first quarter GDP growth, Germany's ZEW business sentiment index, UK inflation and labour market data and Japan's consumer price index will be released. The European Central Bank will also announce its policy decisions.

 

Last week, the Nikkei 225 swung above and below its expected range. The upside was above ¥400 and the downside was below ¥1,290.

This week, the Nikkei 225 is expected to move between the 25-day line (currently around 36 000 yen) on the upside and Bollinger Band -2σ (currently around 32080 yen) on the downside.

             

This week, investors in the US and Japanese markets will be looking for the presence and depth of a second bottom based on the persistence and momentum of the stock index rebound.