Outlook for the Nikkei average this week [4 January 2026]

 [Fundamental viewpoint]

Last week in the U.S. markets, risk-averse selling triggered by a sharp decline in silver futures and year-end position-adjustment selling prevailed, causing stock indices to fall for the week.

Weekly Change Rate: NY Dow: -0.67%, NASDAQ: -1.52%, S&P 500: -1.03%.

                                                                                                 

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 1.23 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 22.9 and the Nikkei 225's P/E ratio of 19.0 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 2026 relative to the current price of the Nikkei 225 will be 1.23 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 24.8 Or, the Nikkei 225 will be around 65,760 yen.

As a result, the Japanese market is undervalued by about 15,420 yen in the medium to long term.

 

From a fundamental perspective, the Japanese market could be said to be approximately 15,420yen less attractive than the US market. The weakness in the Japanese market has 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 2026 GDP estimate (now +2.5%) 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 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    Following the earnings announcements, the projected ROE for Nikkei 225 constituents stands at +8.9%. This represents a 0.1 percentage point improvement compared to three months ago. The profit growth rate is -3.1%, marking a 3.5 percentage point improvement compared to three months ago.

③    U.S. long-term interest rates rose, widening the interest rate differential between Japan and the U.S. from 2.10 to 2.14. The dollar-yen pair moved within the range of 155 to 156 yen, weakening the yen. The dollar index rose +0.39% for 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.

The fourth week of December likely saw net buying, while the fifth week likely saw net selling. Net buying is expected this week. Last week, out of five points, ① was a bearish factor.

 

[Technical viewpoint]

From a technical perspective, the Japanese market is overvalued by 7.7 percentage points (equivalent to approximately ¥3880 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 10.1 percentage points (equivalent to approximately ¥5080 for the Nikkei average) relative to the NY Dow's 200-day moving average deviation rate over the same timeframe.

 

The Japanese market is stronger than the NY Dow and NASDAQ. The VIX, an indicator of volatility in the U.S. market, fell to 14.5 on a weekly basis. The Nikkei VI fell to 23.8 on a weekly basis. The U.S. market is in an “optimistic” state, while the Japanese market is in a state of “moodiness.”

 

The Nikkei Average is above both the 9-day and 25-day moving averages. A “green light” is lit for the short-term trend.

The Nikkei Average is above the cloud in the Ichimoku Kinko Hyo chart. The overall deviation rate is +22.2%, and the deviation rate from the 200-day moving average is +18.6%. With all three factors positive, a “green light” is lit for the medium-term trend.

 

In the US market, the NY Dow is below the 9-day line and above 25-day and 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 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, 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 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 indicates that the yen has shifted towards depreciation, with the low of 139 yen reached in April 2025 marking the bottom. This week, the yen is expected to trade between the 155 and 158 yen per dollar range.

 

This week in the U.S. markets, following the Christmas and New Year holidays, economic indicators will be released and trading volume is expected to increase. Labor market surveys, including the December Employment Report, JOLTS Job Openings Survey, and ADP Employment Report, will draw the most attention. Other releases include the ISM Purchasing Managers' Index (PMI) and the University of Michigan Consumer Sentiment Survey. Globally, China's PMI and inflation indicators, the Eurozone inflation rate, Germany's unemployment rate, and key manufacturing indicators are scheduled for release.

 

Last week, the Nikkei Average moved within an expected range. The upper limit fell below 600 yen, while the lower limit rose above 600 yen.

This week, the Nikkei Average is expected to move within a range defined by the upper limit at the Bollinger Band +2σ (currently around 51,230 yen) and the lower limit at the 25-day moving average (currently 50,140 yen).

             

This week, the Nikkei average is expected to see volatile movements early in the week due to the impact of the Trump administration's sudden military action against Venezuela.