Outlook for the Nikkei average this week [20 April 2025]

[Fundamental viewpoint]

Stock indices fell on the US markets last week, with a spillover from the fall in NVIDIA shares, whose AI semiconductors for China were subject to US government export restrictions.

Weekly change NY Dow: -2.66%, NASDAQ: -2.62%, S&P 500: -1.50.

                                                                                                 

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 4.02 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 19.8 and the Nikkei 225's P/E ratio of 14.0 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 4.02 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 32.2 Or, the Nikkei 225 will be around 79,690 yen.

As a result, the Japanese market is undervalued by about 44,960 yen in the medium to long term.

 

Fundamentally, the Japanese market can be said to be about 44,960 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 announcement of financial results, the expected ROE of the Nikkei 225 stocks was +9.2%, the same level as three months ago; the profit growth rate was +7.3%, an improvement of +5.3 percentage points compared to three months ago; and the ROE of the Nikkei 225 stocks was +9.2%, an improvement of +5.3 percentage points compared to three months ago.

③    US long-term interest rates fell and the interest rate differential between the US and Japan narrowed from 3.21 to 3.05, with the dollar moving in the direction of a stronger yen in the range of ¥144 to ¥141. The Dollar Index fell -0.38% 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 second week of April was overbought, the third week of April was likely overbought and this week is expected to be overbought. Last week, of the five points, ① was bearish and ⑤ was bullish.

 

[Technical viewpoint]

Looking at the Japanese market from a technical perspective, it is undervalued by 2.4 points in the medium to long term in terms of the difference in 200-day divergence from the NASDAQ (about 830 yen in terms of the Nikkei 225). On the other hand, the difference in 200-day divergence from the NYDow is 1.6 points (approximately 560 yen in relation to the Nikkei 225) more expensive in the medium to long term.

 

Japanese markets are weak against the NY Dow and NASDAQ. The VIX, a measure of US market volatility, fell to a weekly low of 29.7. The Nikkei VI fell to a weekly low of 30.8. Both the US and Japanese markets are in a state of ‘fear’..

 

The Nikkei 225 is above the 9-day line and below the 25-day line. The short-term trend is ‘yellowing’.

The Nikkei 225 is below the Ichimoku Chart cloud. The overall divergence is -19.0% and the divergence from the 200-day moving average is -9.1%. 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 line and 25-day and 200-day lines. It is below the clouds of the equilibrium chart.

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

This is a ‘red 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 143 and 139 yen.

 

In the US markets, volatility is likely to continue to rise across all asset classes as the future of tariff policy remains uncertain. Durable goods orders and existing home sales will also be in focus on economic indicators.

Investors will also be closely watching earnings reports from Alphabet, Tesla, Boeing, Intel, IBM, Merck and P&G. Globally, preliminary PMI figures from the Eurozone and Japan will reveal the initial impact of the tariff threat.

 

Last week, the Nikkei 225 remained within the expected range. The upper price was below ¥720 and the lower price was above ¥1990.

This week, the Nikkei 225 is expected to move between the Bollinger Band +1σ (currently around JPY 37490) on the upside and the Bollinger Band -1σ (currently around JPY 33470) on the downside.

             

The first barrier for the Nikkei 225 this week will be whether it can cross the 25-day line. If it can cross it, there will be room to rise to 36 000 yen.