Outlook for the Nikkei average this week [5 April 2026]

 [Fundamental viewpoint]

Last week, U.S. stock indices rose on expectations that the military conflict in the Middle East would come to an end.

Weekly percentage change: Dow Jones: +2.96%, NASDAQ: +4.44%, S&P 500: +3.36%.

                                                                                                 

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 0.58 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 20.3 and the Nikkei 225's P/E ratio of 19.9 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 0.58 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 22.5 Or, the Nikkei 225 will be around 60,010 yen.

As a result, the Japanese market is undervalued by about 6,890 yen in the medium to long term.

 

From a fundamental perspective, one could say that the Japanese market is about 6,890 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 below the 200-day line and the clouds on the Ichimoku Chart. The weekly leg of the NASDAQ was positive. 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 NYDow can return above the 200-day line.

②    Based on the earnings announcements, the projected ROE for Nikkei 225 constituent stocks stands at +8.8%. This is unchanged from three months ago. The projected profit growth rate is -1.6%, an improvement of 1.5 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 2.08 to 1.97. As a result, the dollar-yen exchange rate moved toward a stronger yen, fluctuating between the 160 and 158 yen ranges. The Dollar Index fell by 0.01% 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 fourth week of March saw a net sell position, and it is highly likely that the first week of April also saw a net sell position; a net sell position is expected this week. Last week, out of the five factors, factor ① was a bullish indicator, while factor ③ was a bearish indicator.

 

[Technical viewpoint]

From a technical perspective, the Japanese market is overvalued by 13.2 percentage points (equivalent to approximately ¥7,010 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 11.0 percentage points (equivalent to approximately ¥5,840 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 23.9 for the week. The Nikkei VI fell to 27.2 for the week. The U.S. market is in a state of “extreme fear,” and the Japanese market is also in a state of “extreme fear.”

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

The Nikkei Average is below the cloud in the Ichimoku Kinko Hyo chart. The overall deviation rate is +8.2%, and the deviation rate from the 200-day moving average is +10.8%. With two factors positive, a “yellow light” is lit for the medium-term trend.

 

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

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

It is a ‘yellow 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 no trend. The Japanese market is in a medium-term no trend, and the short-term is no 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 160 and 158 yen per dollar range.

 

In the U.S. markets this week, developments in the Middle East are likely to remain the primary driver of market volatility. On the economic front, attention will focus on the FOMC minutes, CPI data, the ISM Services PMI, the University of Michigan Consumer Sentiment Index (flash estimate), and PCE (Personal Consumption Expenditures). Globally, China’s CPI and Germany’s manufacturing orders are scheduled for release.

 

Last week, the Nikkei 225 closed above the expected range. The high exceeded 19,800 yen, and the low exceeded 19,900 yen.

This week, the Nikkei 225 is expected to trade within a range defined by the 25-day moving average (currently around 54,060 yen) on the upside and the -2σ Bollinger Band (currently 50,470 yen) on the downside.

                           

This week, the Nikkei Average is likely to continue being swayed by developments in the war in the Persian Gulf and crude oil prices. Unless crude oil prices stabilize, the market is expected to remain dominated by selling pressure.