Outlook for the Nikkei average this week [15 June 2025]

 [Fundamental viewpoint]

In the US markets last week, stock indices fell on the week as tensions in the Middle East over Israel and Iran escalated.

Weekly volatility NY Dow: -1.32%, NASDAQ: -0.63%, S&P 500: -0.39%.

                                                                                                 

On the other hand, medium- to long-term risks include concerns about a prolonged conflict in Ukraine, tariff policies of the U.S. administration, 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. Furthermore, 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 4.03 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 22.9 and the Nikkei 225's P/E ratio of 15.4 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 4.03 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 40.6 Or, the Nikkei 225 will be around 99,750 yen.

As a result, the Japanese market is undervalued by about 61,910 yen in the medium to long term.

 

Fundamentally, the Japanese market can be said to be about 61,910 less attractive than the US market. Weakness in the Japanese market was magnified..

 

[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 the clouds on the Ichimoku Chart. The weekly leg of the NASDAQ was negative. The daily is above the 200-day line and the clouds of the Ichimoku Chart. This week, the focus will be on whether the NY Dow can return above the 200-day line..

②    As a result of the earnings announcements, the expected ROE of the Nikkei 225 stocks was +9.1%, a deterioration of -0.1 percentage points compared to three months ago. Profit growth came in at -3.9%, a deterioration of -11.0 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 2.95 to 3.00, the dollar moved in the direction of a stronger yen in the range of ¥145 to ¥142. The Dollar Index fell -1.07% 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 June was overbought, the second week of June was likely overbought and this week is expected to be overbought. Of the five points, ① and ③ were bearish last week.

 

[Technical viewpoint]

From a technical perspective, the Japanese market is undervalued by 4.5 points in the medium to long term in terms of the difference in the 200-day divergence rate from the NASDAQ (about 1,700 yen when converted to the Nikkei 225). On the other hand, the difference in the 200-day divergence from the NYDow is overvalued by 0.6 point in the medium to long term (about 230 yen when converted to the Nikkei 225).

 

Japanese markets are weak against the NY Dow and NASDAQ. The VIX, a measure of US market volatility, rose to 20.8 for the week. The Nikkei VI rose to 27.4 for the week. Both the US and Japanese markets are in a state of ‘doubt’.

 

The Nikkei 225 is below the 9-day line but above the 25-day line. The short-term trend is now showing a “yellow signal.

The Nikkei 225 is above the Ichimoku Kinko's Kumo (equilibrium) cloud. The overall divergence was +3.3%, while the 200-day moving average divergence was -0.2%. Since the two factors are positive, the medium-term trend is also “yellowing”.

 

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

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

It is a ‘yellow 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 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 no trend and a short-term no trend. The Japanese market is in a medium-term no trend, and the short-term is no 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 145 and 142 yen.

 

Geopolitical tensions in the Middle East will continue to be a focus of attention in the US markets this week. The outcome of the FOMC meeting and progress in trade negotiations with key partner countries will also need to be closely monitored. In terms of economic indicators, retail sales and industrial production will be released. Globally, the G7 summit, monetary policy announcements from China, Japan and the UK, UK inflation, German business confidence index, Chinese industrial production and retail sales, and Japanese trade statistics will be released.

 

Last week, the Nikkei 225 fell below its expected range. The upside was above ¥60 and the downside was below ¥220.

This week, the Nikkei 225 is expected to move between the Bollinger Band +2σ (currently around JPY 38490) on the upside and the Bollinger Band -1σ (currently around JPY 37400) on the downside.

             

This week, it will be interesting to see whether the Nikkei 225 will close above the 11 June high (JPY 38529) or below the 22 May low (JPY 36856).