Outlook for the Nikkei average this week [28 June 2026]

 [Fundamental viewpoint]

In the U.S. markets last week, while falling crude oil prices provided some support, concerns over the profitability of massive investments in AI weighed on the markets, resulting in mixed weekly performance for the major stock indices.

Weekly percentage change: Dow Jones: +0.60%, NASDAQ: -4.60%, S&P 500: -1.95%

                                       

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.

Considering the OECD’s nominal GDP forecasts for 2026, the Japanese market is overvalued by 0.12 points relative to the U.S. market. This overvaluation stems from the difference between the S&P 500’s P/E ratio of 21.5 and the projected P/E ratio of 17.3 for companies included in the Nikkei 225 for the current fiscal year, as well as the interest rate differential and the difference in GDP growth rates between Japan and the U.S.

For the Japanese and U.S. markets to reach equilibrium, the following conditions must be met:

Compared to the current Nikkei 225 price, the difference in GDP growth rates between Japan and the U.S. in 2026 must narrow by an additional 0.12 percentage points relative to the OECD forecast (either Japan’s forecast must be revised upward or the U.S.’s must be revised downward). Alternatively, the projected P/E ratio for the current fiscal year for Nikkei 225 constituent stocks must reach approximately 17.3. Or, the Nikkei 225 must reach approximately 67,890 yen.

Consequently, the Japanese market is overvalued by about 1,470 yen in the medium to long term.

From a fundamental perspective, one could say that the Japanese market is about 1,470 yen more attractive than the U.S. market. Last week, the strength of the Japanese market diminished.

 

[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 +2.9%) 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 negative. 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 25-day line.

②    Following the release of earnings results, the projected ROE for Nikkei 225 constituent stocks stood at +10.6%. This represents an improvement of +1.9 percentage points compared to three months ago. The profit growth rate was +10.2%, marking an improvement of +11.6 percentage points compared to three months ago.

③    Although U.S. long-term interest rates fell and the interest rate differential between Japan and the U.S. narrowed from 1.81 to 1.78, the dollar-yen exchange rate remained in the 161 range, trending toward a weaker yen. The Dollar Index rose 0.60% for the week.

④    The OECD's nominal GDP growth rate for Japan and the U.S. in 2026 is expected to be +2.9% for Japan and +5.8% for the U.S., so the Japanese market is 2.9 percentage points inferior in this aspect.

⑤    The third week of June saw a net buying position, and it is highly likely that the fourth week of June also saw a net buying position; a net selling position 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 21.0 percentage points (equivalent to approximately 14,570 yen for the Nikkei 225) relative to the NASDAQ based on the 200-day moving average deviation. Meanwhile, it is overvalued by 20.6 percentage points (equivalent to approximately 14,290 yen for the Nikkei 225) relative to the NY Dow based on the 200-day moving average deviation.

 

The Japanese market is performing better than the Dow Jones and NASDAQ. The VIX, an indicator of volatility in the U.S. market, rose to 18.4 for the week. The Nikkei VI rose to 33.1 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 above the cloud in the Ichimoku Kinko Hyo chart. The overall deviation rate is +44.7%, and the deviation rate from the 200-day moving average is +27.8%. 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 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]

In the U.S. market, concerns about an economic downturn driven by rising long-term interest rates—a result of 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 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 160 and 162 yen per dollar range.

 

In the U.S. markets this week, the status of tanker traffic through the Strait of Hormuz is likely to be the focus of attention. On the economic front, key data points to watch include the June employment report, the JOLTS report, the ADP employment report, the ISM Manufacturing PMI, manufacturing orders, and the Case-Shiller Home Price Index. Globally, data such as the eurozone inflation rate, Japan’s industrial production, retail sales, and unemployment rate, as well as China’s PMI, will be released.

 

Last week, the Nikkei Average traded above the expected range. The upper limit was exceeded by about 330 yen, and the lower limit by about 1,030 yen.

This week, the Nikkei Average is expected to trade within a range defined by the upper limit at the +1σ Bollinger Band (currently around 70,200 yen) and the lower limit at the -1σ Bollinger Band (currently 65,010 yen).

                           

The Nikkei Average is likely to trend downward this week if concerns persist regarding the profitability of massive investments in AI.