Outlook for the Nikkei average this week [8 March 2026]

[Fundamental viewpoint]

Last week in the U.S. markets, stock indices fell for the week amid concerns over rising oil prices and the impact on the U.S. economy due to the prolonged military conflict.

Weekly Change Rate: NY Dow: -3.01%, NASDAQ: -1.24%, S&P 500: -2.02%.

                                                                                                 

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 0.70 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 21.5 and the Nikkei 225's P/E ratio of 19.7 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 0.70 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 22.9 Or, the Nikkei 225 will be around 64,460 yen.

As a result, the Japanese market is undervalued by about 8,840 yen in the medium to long term.

 

Fundamentally speaking, the Japanese market is about ¥8,840 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 above the 200-day line and below the clouds on the Ichimoku Chart. The weekly leg of the NASDAQ was negative. The daily is above the 200-day line and below the clouds on the Ichimoku Chart. This week, the focus will be on whether the NASDAQ can return above the 25-day line.

②    Following the earnings announcements, the projected ROE for Nikkei 225 constituents reached +8.9%. This represents a 0.1 percentage point improvement compared to three months ago. The profit growth rate stood at +0.6%, marking a 3.8 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 1.84 to 1.98. The dollar-yen exchange rate moved in a weakening direction for the yen, fluctuating between the 155 and 158 yen range. The dollar index rose +1.24% for 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 +4.9% for the U.S., so the Japanese market is 1.7 percentage points inferior in this aspect.

⑤    The fourth week of February likely saw net buying, while the first week of March likely saw net selling. Net selling 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 19.2 percentage points (equivalent to approximately ¥10,680 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 17.5 percentage points (equivalent to approximately ¥9,730 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 stronger than the NY Dow and NASDAQ. The VIX, an indicator of volatility in the U.S. market, rose to 29.5 on a weekly basis. The Nikkei VI rose to 41.1 on a weekly basis. The U.S. market is in a state of “fear,” while 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 +24.4%, and the deviation rate from the 200-day moving average is +19.8%. 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 25-day and above 200-day lines. It is below the clouds of the Ichimoku chart.

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

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

 

[Outlook for this week]

In the U.S. market, key immediate concerns include the impact of U.S.-Israel attacks on Iran, the AI agent shock, the frequency of Fed rate cuts this year, the Supreme Court's ruling on the unconstitutionality of Trump tariffs, and the advancement of Donlowism.

 

Looking at the technical aspects, the U.S. market is in a medium-term no trend and a short-term down trend. The Japanese market is in a medium-term up 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 155 yen per dollar range.

 

This week in U.S. markets, the Middle East conflict triggered a sharp rise in crude oil prices, heightening global inflation expectations. Reports from the IEA and OPEC will shed light on how they view the energy supply shock from the Persian Gulf. On the economic data front, February's Consumer Price Index (CPI) and January's Personal Consumption Expenditures (PCE) will be closely watched. Globally, releases include China's price index, Japan's household spending, Eurozone industrial production statistics, and UK manufacturing output.

 

Last week, the Nikkei average fell significantly below its expected range. The upper limit dipped below ¥1,520, while the lower limit fell below ¥2,330.

This week, the Nikkei average is expected to move within a range defined by the upper limit at the 25-day moving average (currently around ¥56,110) and the lower limit at the Bollinger Band -2σ (currently ¥52,510).

                           

This week, the Nikkei average is likely to remain volatile amid Middle East tensions and oil price fluctuations. Unless concerns about a prolonged conflict are dispelled, selling pressure is expected to persist.