Outlook for the Nikkei average this week [31 August 2025]

 [Fundamental viewpoint]

Last week on the US markets, although Nvidia posted strong earnings, reports of Chinese firms catching up in AI semiconductors fuelled uncertainty over future AI demand, leading to a weekly decline in stock indices.

Weekly change: Dow Jones: -0.19%, NASDAQ: -0.19%, S&P 500: -0.10%.

                                                                                                 

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 3.01 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 24.0 and the Nikkei 225's P/E ratio of 17.7 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 3.01 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 37.8 Or, the Nikkei 225 will be around 91,310 yen.

As a result, the Japanese market is undervalued by about 48,600 yen in the medium to long term.

 

Fundamentally speaking, the Japanese market is arguably less attractive than the US market by around ¥48,600. Last week, the weakness in the Japanese market intensified.

 

[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 above the 200-day line and above the clouds on the Ichimoku Chart. The weekly leg of the NASDAQ was negative. The daily is above the 200-day line and above the clouds on the Ichimoku Chart. This week, the focus will be on whether the NY Dow can keep above the 25-day line.

②    As a result of the financial results announcement, the ROE forecast for Nikkei 225 stocks was +8.9%. This is a deterioration of 0.2 percentage points compared to three months ago. Profit growth was -6.4%. This is a deterioration of 2.2 percentage points compared to three months ago.

③    US long-term interest rates declined, narrowing the interest rate differential between Japan and the US from 2.64 to 2.62. Consequently, the dollar-yen exchange rate fluctuated within the range of 148 to 146 yen. The dollar index rose by +0.13% over 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 and fourth weeks of August were likely net sellers, and this week is expected to be a net seller. Last week, out of the five points, ⑤ was the bearish factor.

 

[Technical viewpoint]

From a technical perspective, the Japanese market is undervalued by 0.4 points in the medium to long term in terms of the difference in the 200-day divergence rate from the NASDAQ (about 170 yen when converted to the Nikkei 225). On the other hand, the difference in the 200-day divergence from the NYDow is overvalued by 4.9 point in the medium to long term (about2090 yen when converted to the Nikkei 225).

 

The Japanese market is stronger than the Dow Jones Industrial Average but weaker than the NASDAQ. The VIX, an indicator of volatility in the US market, rose to 15.4 on a weekly basis. The Nikkei VI fell to 22.3 on a weekly basis. The US market is optimistic, while the Japanese market is in a state of “mood of suspicion”.

 

The Nikkei 225 is below the 9-day line and 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 +19.5%, while the 200-day moving average divergence was +10.7%. As all three factors are positive, the medium-term trend has a "green light".

 

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

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

It is a ‘green light’ in the short term and a ‘green light’ in the medium term.

 

[Outlook for this week]

Looking at the US market from a fundamental perspective, concerns about an economic downturn remain in the short 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 up trend and a short-term up trend. The Japanese market is in a medium-term up 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 147 and 145 yen.

 

This week in the US market, August's employment statistics will reveal whether the labour market slowdown persists. Non-farm payrolls, the unemployment rate, wage growth, the ADP employment report, and JOLTS job openings will provide fresh insights. Additionally, the ISM Purchasing Managers' Index will serve as an indicator for growth, employment, and prices, while the trade balance, reflecting tariff impacts, will also be released. Globally, inflation data for the eurozone, UK retail sales, China's PMI, and GDP figures for Australia, Brazil, and South Korea will be released.

 

Last week, the Nikkei average traded within the expected range. The upper limit fell below ¥890, while the lower limit rose above ¥300.

This week, the Nikkei average is expected to move within a range defined by the upper limit at the Bollinger Band +1σ (currently around ¥43,100) and the lower limit at the Bollinger Band -1σ (currently around ¥40,970).

             

This week will be a crucial test for the Nikkei average to see whether its upward trend will be sustained.

Outlook for the Nikkei average this week [24 August 2025]

 [Fundamental viewpoint]

In the US market last week, amid a lull in semiconductor-related and other high-tech stocks, investor expectations for interest rate cuts strengthened following Fed Chair Powell's speech at the Jackson Hole conference, resulting in mixed stock index performance for the week.

Weekly change: NY Dow: +1.53%, NASDAQ: -0.58%, S&P 500: +0.27%.

                                                                                                 

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 2.99 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 23.7 and the Nikkei 225's P/E ratio of 17.7 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 2.99 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 37.4 Or, the Nikkei 225 will be around 90,160 yen.

As a result, the Japanese market is undervalued by about 47,530 yen in the medium to long term.

 

Fundamentally, the Japanese market is about 47,530 yen less attractive than the US market. Last week, the weakness in the Japanese market eased.

 

[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 above the 200-day line and above the clouds on the Ichimoku Chart.2) The weekly leg of the NASDAQ was negative. The daily is above the 200-day line and above the clouds on the Ichimoku Chart. This week, the focus will be on whether the NY Dow can keep above the 25-day line.

②    As a result of the financial results announcement, the ROE forecast for Nikkei 225 stocks was +8.8%. This is a deterioration of 0.2 percentage points compared to three months ago. Profit growth was -6.5%. This is a deterioration of 2.2 percentage points compared to three months ago.

③    Long-term interest rates in the United States declined, and the interest rate differential between Japan and the United States narrowed from 2.76 to 2.64, causing the dollar-yen exchange rate to move in the direction of yen appreciation, ranging from 148 yen to 146 yen. The dollar index fell 0.11% over 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    Overbuying in the second week of August, overselling in the third week of August, and overbuying is expected to this week. Last week, of the five points, ① was bearish.

 

[Technical viewpoint]

From a technical perspective, the Japanese market is undervalued by 1.0 points in the medium to long term in terms of the difference in the 200-day divergence rate from the NASDAQ (about 430 yen when converted to the Nikkei 225). On the other hand, the difference in the 200-day divergence from the NYDow is overvalued by 4.6 point in the medium to long term (about 1960 yen when converted to the Nikkei 225).

 

The Japanese market is stronger than the NY Dow but weaker than the NASDAQ. The VIX, an indicator of volatility in the US market, fell to 14.2 for the week. The Nikkei VI rose to 25.1 for the week. The US market is optimistic, while the Japanese market is in a state of ‘suspicion and distrust.’

 

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

The Nikkei 225 is above the Ichimoku Kinko's Kumo (equilibrium) cloud. The overall divergence was +21.1%, while the 200-day moving average divergence was +10.7%. As all three factors are positive, the medium-term trend has a "green light".

 

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

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

It is a ‘green light’ in the short term and a ‘green light’ in the medium term.

 

[Outlook for this week]

Looking at the US market from a fundamental perspective, concerns about an economic downturn remain in the short 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 up trend and a short-term up trend. The Japanese market is in a medium-term up 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 147 and 145 yen.

 

I In the US market this week, interest rate prospects will continue to be the focus of attention following Chairman Powell's speech at Jackson Hole. Economic indicators will include personal income, consumer spending, the PCE price index, revised second quarter GDP figures, durable goods orders, a series of indicators on house prices and sales, and the consumer confidence index. Nvidia's financial results will also provide new insights into AI trends. Globally, attention will also be focused on China's PMI, the minutes of the ECB meeting, and inflation rates in the eurozone..

 

Last week, the Nikkei Average fell below the expected range. The upper limit fell below 950 yen, and the lower limit fell below 490 yen.

This week, the Nikkei Average is expected to move between the upper limit of the Bollinger Band +2σ (currently around 44,030 yen) and the lower limit of the 25-day moving average (currently around 41,600 yen).

             

This week, the Nikkei Average is expected to challenge its all-time high.

Outlook for the Nikkei average this week [17 August 2025]

 [Fundamental viewpoint]

In the US market last week, July's CPI was largely in line with market expectations, easing excessive concerns about inflation and further raising expectations for a rate cut by the Fed in September, causing stock indices to rise for the week.

Weekly change: NY Dow: +1.74%, NASDAQ: +0.81%, S&P 500: +0.94%.

                                                                                                 

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 3.13 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 24.1 and the Nikkei 225's P/E ratio of 17.8 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 3.13 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 40.1 Or, the Nikkei 225 will be around 97,800 yen.

As a result, the Japanese market is undervalued by about 54,420 yen in the medium to long term.

 

Fundamentally, the Japanese market is about 54,420 yen less attractive than the US market. Last week, the weakness of the Japanese market eased slightly.

 

[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 above the 200-day line and above the clouds on the Ichimoku Chart.2) The weekly leg of the NASDAQ was positive. The daily is above the 200-day line and above the clouds on the Ichimoku Chart. This week, the focus will be on whether the NY Dow can keep above the 25-day line.

②    As a result of the financial results announcement, the ROE forecast for Nikkei 225 stocks was +8.9%. This is a deterioration of 0.3 percentage points compared to three months ago. Profit growth was -6.4%. This is a deterioration of 4.1 percentage points compared to three months ago.

③    Although long-term interest rates in the United States rose, the interest rate differential between Japan and the United States narrowed from 2.80 to 2.76, and the dollar-yen exchange rate moved in the direction of yen appreciation, ranging from 148 yen to 146 yen. The dollar index fell -0.43% over 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 August saw net selling, while the second week of August likely saw net buying, and net buying is expected this week. Last week, of the five points, ① was a bullish factor.

 

[Technical viewpoint]

From a technical perspective, the Japanese market is overvalued by 0.3 points in the medium to long term in terms of the difference in the 200-day divergence rate from the NASDAQ (about 130 yen when converted to the Nikkei 225). On the other hand, the difference in the 200-day divergence from the NYDow is overvalued by 8.5 point in the medium to long term (about 3690 yen when converted to the Nikkei 225).

 

The Japanese market is stronger than the NY Dow and NASDAQ. The VIX, an indicator of volatility in the US market, fell to 15.1 for the week. The Nikkei VI fell to 24.6 for the week. The US market is optimistic, while the Japanese market is in a state of ‘suspicion and distrust.’’’

 

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

The Nikkei 225 is above the Ichimoku Kinko's Kumo (equilibrium) cloud. The overall divergence was +30.1%, while the 200-day moving average divergence was +13.0%. As all three factors are positive, the medium-term trend has a "green light".

 

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

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

It is a ‘green light’ in the short term and a ‘green light’ in the medium term.

 

[Outlook for this week]

Looking at the US market from a fundamental perspective, concerns about an economic downturn remain in the short 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 up trend and a short-term up trend. The Japanese market is in a medium-term up 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 147 and 145 yen.

 

In the US market this week, Fed Chair Powell will deliver a speech at the Jackson Hole Symposium and may comment on the White House's request for interest rate cuts. In addition, the minutes of the previous FOMC meeting will also be closely watched. In terms of economic indicators, the housing price index, housing starts, and existing home sales will be announced. Globally, attention is likely to focus on the PMI for the eurozone, the UK, and Japan, price data for the UK and Japan, and China's interest rate decision..

 

Last week, the Nikkei Average remained within the expected range. The upper limit was 70 yen lower than expected, and the lower limit was 680 yen higher than expected.

This week, the Nikkei Average is expected to move between the upper limit of the Bollinger Band +3σ (currently around 44,340 yen) and the lower limit of the Bollinger Band +1σ (currently around 42,050 yen).          

This week, the Nikkei Average is expected to fluctuate around the rising Bollinger Band +2σ, and is likely to reach a new high.

Outlook for the Nikkei average this week [11 August 2025]

 [Fundamental viewpoint]

Last week, the US market saw stock indices rise over the week on speculation that aggressive monetary easing would support the economy, based on expectations of a rate cut by the Federal Reserve in September.

Weekly change: NY Dow: +1.35%, NASDAQ: +3.87%, S&P 500: +2.43%.

                                                                                                 

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 3.34 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 23.8 and the Nikkei 225's P/E ratio of 17.1 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 3.34 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 39.9 Or, the Nikkei 225 will be around 97,500 yen.

As a result, the Japanese market is undervalued by about 55,680 yen in the medium to long term.

 

Fundamentally speaking, the Japanese market is about 55,680 yen less attractive than the US market. Last week, the weakness of the Japanese market expanded slightly.

 

[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 above the 200-day line and above the clouds on the Ichimoku Chart.2) The weekly leg of the NASDAQ was positive. The daily is above the 200-day line and above the clouds on the Ichimoku Chart. This week, the focus will be on whether the NY Dow can return above the 25-day line.

②    As a result of the financial results announcement, the ROE forecast for Nikkei 225 constituent stocks was +8.9%. This is an improvement of +0.2 percentage points compared to three months ago. Profit growth was -6.1%. This is a deterioration of -5.6 percentage points compared to three months ago.

③    Long-term interest rates in the United States rose, widening the interest rate differential between Japan and the United States from 2.67 to 2.80, and the dollar-yen exchange rate moved in the direction of yen depreciation, ranging from 146 yen to 148 yen. The dollar index fell 0.41% over 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 fifth week of July saw net selling, while the first week of August likely saw net buying, and net buying is expected this week. Last week, points ① and ③ were bullish factors out of the five points.

 

[Technical viewpoint]

From a technical perspective, the Japanese market is undervalued by 3.0 points in the medium to long term in terms of the difference in the 200-day divergence rate from the NASDAQ (about 1250 yen when converted to the Nikkei 225). On the other hand, the difference in the 200-day divergence from the NYDow is overvalued by 6.3 point in the medium to long term (about 2630 yen when converted to the Nikkei 225).

 

The Japanese market is stronger than the NY Dow but weaker than the NASDAQ. The VIX, an indicator of volatility in the US market, fell to 15.2 for the week. The Nikkei VI rose to 24.7 for the week. The US market is optimistic, while the Japanese market is in a state of ‘suspicion and distrust.’’

 

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

The Nikkei 225 is above the Ichimoku Kinko's Kumo (equilibrium) cloud. The overall divergence was +21.0%, while the 200-day moving average divergence was +9.2%. As all three factors are positive, the medium-term trend has a "green light".

 

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

The NASDAQ is above the 9-day line and 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 ‘green 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 up trend and a short-term no trend. The Japanese market is in a medium-term up 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 147 and 144 yen.

 

This week in the US market, attention will focus on whether there will be any progress toward a US-China agreement on tariffs by the August 12 deadline. In addition, attention will also focus on the meeting between President Trump and President Putin on the 15th to explore solutions to the Ukraine conflict. In the U.S., key economic indicators such as the Consumer Price Index (CPI), Producer Price Index (PPI), retail sales, industrial production, and the University of Michigan Consumer Sentiment Index (flash estimate) will be released. Globally, China's retail sales, as well as second-quarter GDP figures for the Eurozone, Japan, and the UK, will also be announced..

 

Last week, the Nikkei Average exceeded the expected range. The upper limit exceeded 1,650 yen, and the lower limit exceeded 960 yen.

This week, the Nikkei Average is expected to move between the upper limit of the Bollinger Band +3σ (currently around 42,590 yen) and the lower limit of the Bollinger Band +1σ (currently around 41,120 yen).

             

This week, the Nikkei Average is likely to challenge its all-time high. Technically, it is overbought, but if it can break through the all-time high, momentum will increase and further gains can be expected.

Outlook for the Nikkei average this week [3 August 2025]

 [Fundamental viewpoint]

Last week, the US market saw a decline in stock indices for the week as July's employment statistics led to concerns about an economic downturn.

Weekly change: NY Dow: -2.92%, NASDAQ: -2.17%, S&P 500: -2.36%.

                                                                                                 

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 3.46 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 23.8 and the Nikkei 225's P/E ratio of 16.4 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 3.46 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 38.1 Or, the Nikkei 225 will be around 94,480 yen.

As a result, the Japanese market is undervalued by about 53,680 yen in the medium to long term.

 

Fundamentally, the Japanese market can be said to be about 53,680 yen less attractive than the US market. Weakness in the Japanese market improved 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 above the 200-day line and above the clouds on the Ichimoku Chart.2) The weekly leg of the NASDAQ was negative. The daily is above the 200-day line and above the clouds on the Ichimoku Chart. This week, the focus will be on whether the NY Dow can return above the 25-day line..

②    As a result of the earnings announcements, the expected ROE of the Nikkei 225 stocks was +9.0%, a deterioration of -0.2 percentage points compared to three months ago. Profit growth was -4.4%, a deterioration of -9.5 percentage points compared to three months ago.

③    Long-term interest rates in the United States declined, narrowing the interest rate differential between Japan and the United States from 2.89 to 2.79, and the dollar-yen exchange rate moved in the direction of yen appreciation, ranging from the 148 yen level to the 145 yen level. The dollar index fell 0.80% over 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 fifth week of July saw net buying, and the first week of August is likely to have seen net buying as well, with net selling expected this week. Last week, of the five points, ① was bearish.

 

[Technical viewpoint]

From a technical perspective, the Japanese market is undervalued by 1.8 points in the medium to long term in terms of the difference in the 200-day divergence rate from the NASDAQ (about 720 yen when converted to the Nikkei 225). On the other hand, the difference in the 200-day divergence from the NYDow is overvalued by 4.9 point in the medium to long term (about 2000 yen when converted to the Nikkei 225).

 

The Japanese market is stronger than the NY Dow but weaker than the NASDAQ. The VIX, an indicator of volatility in the US market, rose to 20.4 for the week. The Nikkei VI rose to 23.3 for the week. Both the US and Japanese markets are in a state of ‘uncertainty.’

 

The Nikkei 225 is below the 9-day line and 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 +14.6%, while the 200-day moving average divergence was +6.6%. As all three factors are positive, the medium-term trend has a "green light".

 

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

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

It is a ‘red light’ in the short term and a ‘green 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 up trend and a short-term up trend. The Japanese market is in a medium-term up 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 147 and 144 yen.

 

This week in the US market, investors will be closely watching trade negotiations between the US and its major trading partners as the August 1 deadline for tariff implementation approaches. Additionally, this week will see the most active earnings announcements from companies such as Microsoft, Apple, Amazon, and Meta. Furthermore, important monetary policy decisions by central banks such as the Federal Reserve and the Bank of Japan are also scheduled. On the data front, key releases include the preliminary second-quarter GDP figures, employment statistics, personal consumption expenditures (PCE), and the ISM Manufacturing Purchasing Managers' Index (PMI). Globally, attention will also focus on the GDP and inflation rate of the Eurozone, as well as China's PMI.

 

Last week, the Nikkei Average fell below the expected range. The upper limit fell 670 yen below the expected range, and the lower limit fell 290 yen below the expected range.

This week, the Nikkei Average is expected to move between the upper limit of the 25-day moving average (currently around 40,210 yen) and the lower limit of the Bollinger Band -2σ (currently around 38,880 yen).

             

This week, the Nikkei Average is likely to show signs of a change in its upward trend. From here on, attention is likely to focus on economic indicators that suggest the state of the US economy.