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

 [Fundamental viewpoint]

Last week on the US markets, stock indices fell over the week as President Trump hinted at raising tariffs on China in response to Beijing's announcement of tighter rare earth export controls.

Weekly change rate: NY Dow: -2.73%, NASDAQ: -2.53%, 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 1.57 points undervalued for the Japanese market when the OECD's nominal GDP forecast for 2026 is taken into account. The reason for the undervaluation is the difference between the S&P 500's P/E ratio of 23.0 and the Nikkei 225's P/E ratio of 18.7 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 2026 relative to the current price of the Nikkei 225 will be 1.57 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 26.4 Or, the Nikkei 225 will be around 67,940 yen.

As a result, the Japanese market is undervalued by about 19,850 yen in the medium to long term.

 

From a fundamental perspective, the Japanese market could be said to be approximately ¥19,850 less attractive than the US market. Last week, the weakness in the Japanese market narrowed.

 

[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 return 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 -6.6%. This is a deterioration of 3.2 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 2.47 to 2.36. Nevertheless, the dollar-yen exchange rate moved in a yen-weakening direction, fluctuating within the range of 149 to 153 yen per dollar. The dollar index rose by +1.17% over the week.

④    The OECD's nominal GDP growth rate for Japan and the U.S. in 2026 is expected to be +2.5% for Japan and +4.3% for the U.S., so the Japanese market is 1.8 percentage points inferior in this aspect.

⑤    The first week of October saw net buying, the second week likely saw net buying, and this week is expected to see net selling. Last week, points ③ and ⑤ were the bullish factors among the five points.

 

[Technical viewpoint]

From a technical perspective, the Japanese market is overvalued by 9.3 percentage points (equivalent to approximately ¥4470 for the Nikkei average) relative to the NASDAQ's 200-day moving average deviation rate on a medium-to-long-term basis. Conversely, it is overvalued by 17.1 percentage points (equivalent to approximately ¥8220 for the Nikkei average) relative to the NY Dow's 200-day moving average deviation rate over the same timeframe.

 

The Japanese market is showing greater strength than the NY Dow and NASDAQ. The VIX, an indicator of volatility in the US market, rose to 21.6 over the week. The Nikkei VI rose to 30.1 over the week. Both the US and Japanese markets are in a state of ‘fear’.

 

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 +41.1%, while the 200-day moving average divergence was +21.9%. 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 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, 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 151 and 147 yen.

 

This week in US markets, attention centres on the start of earnings season, with major banks scheduled to report results. Meanwhile, as the government shutdown enters its third week, key economic indicators such as the Consumer Price Index (CPI) are expected to remain delayed. However, other scheduled indicators including the Industrial Production Index, Housing Market Index, and Philadelphia and New York Fed Manufacturing Activity Indices will continue to be closely watched. Globally, investors will focus on China's trade statistics and inflation rate, eurozone industrial production and inflation, Germany's business climate index, UK employment and GDP data, and Japan's political situation.

 

Last week, the Nikkei average exceeded its projected range. The upper limit surpassed 970 yen, while the lower limit exceeded 21,800 yen.

This week's projected range for the Nikkei average is expected to move between the upper Bollinger Band +1σ (currently around ¥46,920) and the lower Bollinger Band -2σ (currently around ¥42,180).

             

This week, the Nikkei average is expected to fluctuate depending on the US-China trade friction and the direction of Japan's new administration, but selling pressure is likely to prevail until uncertainty subsides.