Outlook for the Nikkei average this week [22 March 2026]

 [Fundamental viewpoint]

In the U.S. markets last week, crude oil prices rose sharply amid concerns over the Israeli military’s attack on Iranian gas fields and the possibility of the U.S. military expanding its military operations against Iran, while stock indices declined for the week.

Weekly percentage change: Dow Jones: -2.11%, NASDAQ: -2.07%, S&P 500: -1.90%.

                                                                                                 

On the other hand, medium- to long-term risks include concerns over military conflict in the Middle East and the prolonged Ukraine conflict, financial instability and worries about a global economic slowdown stemming from the U.S. administration's tariff policies and rising interest rates, as well as fears of a real estate bubble bursting and China's economic slowdown. Consequently, there are also concerns about the arrival of stagflation. Furthermore, continued attention is required regarding geopolitical risks in Latin America and East Asia.

The difference in the yield spread between the Japanese and U.S. markets is 0.93 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 20.7 and the Nikkei 225's P/E ratio of 19.5 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 0.93 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 23.8 Or, the Nikkei 225 will be around 65,170 yen.

As a result, the Japanese market is undervalued by about 11,800 yen in the medium to long term.

 

Fundamentally speaking, the Japanese market is about ¥11,800 less attractive than the U.S. market. Last week, 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 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 below the 200-day line and the clouds on the Ichimoku Chart. The weekly leg of the NASDAQ was negative. The daily is a below the 200-day line and the clouds on the Ichimoku Chart. This week, the focus will be on whether the NASDAQ can return above the 200-day line.

②    Following the release of earnings results, the projected ROE for Nikkei 225 constituent stocks stood at +8.8%. This represents a decline of 0.1 percentage points compared to three months ago. The projected profit growth rate was -1.7%, an improvement of 1.4 percentage points compared to three months ago.

③    Long-term U.S. interest rates rose, widening the interest rate differential between Japan and the U.S. from 2.04 to 2.11. As a result, the dollar-yen exchange rate moved slightly toward a stronger yen, fluctuating between the 157 and 159 yen ranges. The Dollar Index fell by 0.99% over the week.

④    The OECD's nominal GDP growth rate for Japan and the U.S. in 2026 is expected to be +3.2% for Japan and +4.7% for the U.S., so the Japanese market is 1.7 percentage points inferior in this aspect.

⑤    The second week of March saw net selling, and it is highly likely that the third week of March also saw net selling; net selling is expected this week. Last week, out of the five points, point ① was a bearish factor.

 

[Technical viewpoint]

From a technical perspective, the Japanese market is overvalued by 14.1 percentage points (equivalent to approximately ¥7,590 for the Nikkei 225) relative to the NASDAQ's 200-day moving average deviation rate on a medium-to-long-term basis. Meanwhile, it is overvalued by 14.9 percentage points (equivalent to approximately ¥8,020 for the Nikkei 225) relative to the NY Dow's 200-day moving average deviation rate on a medium-to-long-term basis.

 

The Japanese market is performing better than the Dow Jones and NASDAQ. The VIX, an indicator of volatility in the U.S. market, fell to 26.8 for the week. The Nikkei VI fell to 35.1 for the week. While the U.S. market is in a state of “fear,” the Japanese market is in a state of “extreme fear.”

The Nikkei Average is below the 9-day and 25-day moving averages. A “red 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 +8.7%, and the deviation rate from the 200-day moving average is +13.1%. With two factors positive, a “yellow light” is lit 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 Ichimoku chart.

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

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

 

[Outlook for this week]

In the U.S. market, concerns about an economic downturn driven by the prolonged conflict in the Middle East and high oil prices are likely to be the primary focus for the time being.

 

Looking at the technical aspects, the U.S. market is in a medium-term down trend and a short-term down trend. The Japanese market is in a medium-term no trend, and the short-term is down 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 158 and 161 yen per dollar range.

 

In the U.S. markets this week, the course of the conflict in the Persian Gulf is likely to remain the primary driver of market volatility. On the economic front, the PMI and the University of Michigan Consumer Sentiment Index will be in the spotlight. Globally, key releases include the PMI for the Eurozone, the UK, and Japan; Germany’s business climate index; and Japan’s Consumer Price Index (CPI).

 

Last week, the Nikkei Average temporarily dipped below the expected range. The upper limit was breached by 470 yen, and the lower limit by 990 yen.

This week, the Nikkei Average is expected to move within a range defined by the upper limit at the -1σ Bollinger Band (currently around 54,490 yen) and the lower limit at the -3σ Bollinger Band (currently 51,080 yen).

                           

This week, the Nikkei Average is likely to remain at the mercy of developments in the war in the Persian Gulf and oil prices; unless oil prices stabilize, selling pressure is expected to persist.