Outlook for the Nikkei average this week [12 April 2026]

 [Fundamental viewpoint]

Last week, U.S. stock indices rose as the U.S. and Iran agreed to an immediate two-week ceasefire and the reopening of the Strait of Hormuz.

Weekly percentage change: Dow Jones: +3.04%, NASDAQ: +4.64%, S&P 500: +3.56%.

                                                                                                 

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 0.45 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 21.0 and the Nikkei 225's P/E ratio of 20.8 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 2026 relative to the current price of the Nikkei 225 will be 0.45 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 62,850 yen.

As a result, the Japanese market is undervalued by about 5,920 yen in the medium to long term.

 

From a fundamental perspective, one could say that the Japanese market is about 5,920 yen less attractive than the U.S. 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 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 positive last week. The daily is above the 200-day line and the clouds on the Ichimoku Chart. The weekly leg of the NASDAQ was positive. The daily is a above the 200-day line and the clouds on the Ichimoku Chart. This week, the focus will be on whether the NYDow can keep above the 200-day line.

②    Following the release of earnings results, the projected ROE for Nikkei 225 constituent stocks stood at +8.9%. This represents a decline of 0.1 percentage points compared to three months ago. The projected profit growth rate was -2.1%, an improvement of 1.2 percentage points compared to three months ago.

③    Long-term U.S. interest rates fell, narrowing the interest rate differential between Japan and the U.S. from 1.97 to 1.90, and the dollar-yen exchange rate moved toward a stronger yen, fluctuating between the 160-yen and 157-yen ranges. The Dollar Index fell by 1.49% 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.

Net buying was recorded in the first week of April, and it is highly likely that net buying also occurred in the second week of April; net buying is expected this week. Last week, out of the five points, point ① was a bullish factor.

 

[Technical viewpoint]

From a technical perspective, the Japanese market is overvalued by 15.8 percentage points (equivalent to approximately ¥8,990 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 15.6 percentage points (equivalent to approximately ¥8,880 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 19.2 for the week. The Nikkei VI rose to 32.6 for the week. 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 above the 9-day and 25-day moving averages. A “green light” is lit for the short-term trend.

The Nikkei Average is aboe the cloud in the Ichimoku Kinko Hyo chart. The overall deviation rate is +29.1%, and the deviation rate from the 200-day moving average is +17.7%. With three factors positive, a “green light” is lit for the medium-term trend.

 

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

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

It is a ‘green light’ in the short term and a ‘yellow 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 no 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 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 159 and 156 yen per dollar range.

 

In the U.S. markets this week, the outcome of ceasefire negotiations regarding the war in the Middle East remains the primary focus. On the economic front, attention will be on the Producer Price Index, the New York Fed Manufacturing Survey, and the Industrial Production Index. Additionally, major financial institutions will release their earnings reports. Globally, economic indicators such as EU trade statistics, industrial production, China’s GDP, trade statistics, industrial production, retail sales, unemployment rate, and housing prices will be released.

 

The Nikkei 225 is expected to trade this week within a range bounded by the upper limit of the +2σ Bollinger Band (currently around 56,640 yen) and the lower limit of the 25-day moving average (currently 53,790 yen).

                           

This week, the Nikkei Average is likely to remain volatile, driven by the unfolding situation in the Persian Gulf and oil prices; however, if the ceasefire between the U.S. and Iran holds, the index is expected to trade along the +2σ line of the Bollinger Bands.