Outlook for the Nikkei average this week [30 August 2026]

 [Fundamental viewpoint]

Last week, U.S. stock markets saw stock indices rise for the week, buoyed by strong earnings reports from NVIDIA and Salesforce.

Weekly percentage change: Dow Jones: +0.53%, NASDAQ: +0.85%, S&P 500: +0.49%

 

On the other hand, medium- to long-term risks include concerns over military conflicts in the Middle East and the protracted conflict in Ukraine; financial instability caused by inflation and rising interest rates driven by high crude oil prices, along with concerns about a global economic slowdown; and concerns over a real estate bubble burst and an economic slowdown in China. Furthermore, these factors have raised concerns about the onset of stagflation. In addition, continued vigilance 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 0.06 points relative to the U.S. market. This overvaluation stems from the difference between the S&P 500’s P/E ratio of 21.1 and the projected P/E ratio of 17.3 for the constituent stocks of 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 0.06 percentage points compared to the OECD forecast (either Japan’s forecast is revised upward or the U.S.’s is revised downward). Alternatively, the projected P/E ratio for the current fiscal year for Nikkei 225 constituent stocks must reach approximately 18.0. Or, the Nikkei 225 must reach approximately 65,740 yen.

Consequently, over the medium to long term, the Japanese market is undervalued by about 670 yen.

From a fundamental perspective, the Japanese market could be considered slightly more attractive than the U.S. market. Last week, the Japanese market shifted to an overvalued status..

 

 [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 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 25-day line.

②    Following the release of earnings results, the projected ROE for Nikkei 225 constituent stocks stood at +10.9%. This represents an improvement of +0.3 percentage points compared to three months ago. The profit growth rate was +18.1%, marking an improvement of +8.9 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 1.86 to 1.81, the dollar-yen exchange rate moved in the direction of yen weakness, ranging from the 158-yen level to the 160-yen level. The Dollar Index rose 0.85% 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    Net selling was recorded in the third week of August. It is highly likely that net buying occurred in the fourth week of August, and net selling 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 5.0 percentage points (equivalent to approximately 3,320 yen when calculated based on the Nikkei 225) relative to the NASDAQ, as measured by the difference in 200-day moving average deviations. Meanwhile, the Japanese market is overvalued by 5.7 percentage points (equivalent to approximately 3,790 yen when calculated based on the Nikkei 225) relative to the NY Dow, as measured by the difference in 200-day moving average deviations.

 

The Japanese market is performing stronger than the Dow Jones Industrial Average and the NASDAQ. The VIX, an indicator of volatility in the U.S. market, rose to 14.4 for the week. The Nikkei VI fell to 23.3 for the week. The U.S. market is in a “state of optimism,” while the Japanese market is in a “slightly fearful” state.

 

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 within the cloud of the Ichimoku Kinko Hyo chart. The overall deviation rate is +14.4%, and the deviation rate from the 200-day moving average is +13.3%. 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 25-day and 200-day lines. It is above the clouds of the Ichimoku chart.

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

The U.S. market is showing a “green 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 up trend. The Japanese market is in a medium-term no 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 161 yen per dollar range.

 

In the U.S. markets this week, long-term interest rates have remained at high levels, and the employment report—which will have a major impact on whether or not interest rates are raised—is the most important event. In addition, the ISM Purchasing Managers’ Index (PMI) will also be in the spotlight. Globally, data on inflation and unemployment rates in the Eurozone, PMI figures, China’s PMI, Japan’s retail sales and unemployment rate, industrial production, and the consumer confidence index are scheduled to be released.

 

Last week, the Nikkei 225 traded within the expected range. The high was about 600 yen below the upper limit, and the low was about 900 yen above the lower limit.

This week, the Nikkei 225 is expected to trade within a range defined by the upper limit at the +1σ level of the Bollinger Bands (currently around 67,560 yen) and the lower limit at the -1σ level (currently 63,710 yen).

 

This week, the Nikkei 225 is likely to be influenced by uncertainty surrounding the situation in the Middle East and expectations of a U.S. interest rate hike in September. If expectations of rising U.S. long-term interest rates persist, the market is likely to remain weak.