Japan 225 Index (Nikkei 225) Forecast for This WeekJapan 225 IndexTVC:NI225shrivskThe Japan 225 index, commonly known as the Nikkei 225, is positioned for continued volatility this week amid a complex interplay of domestic and international factors. The index closed at 42,807.82 on Monday, August 26, gaining 0.4% and extending its winning streak for a second consecutive day. Key Technical Analysis and Short-Term Outlook Technical indicators suggest a mixed but cautiously bullish outlook for the week. The index recently recovered from a 4% decline that brought it down to an intraday low of 42,330 on Friday, August 22. Several technical elements point to a potential bullish reversal: Based on Elliott Wave analysis, the current short-term bullish impulsive sequence from the August 1 low of 39,749 suggests potential for continued upward movement. Key resistance levels to watch are 43,560 and 44,050/44,110, while support is found at 41,975. Daily forecasts for this week show: •Tuesday, August 26: Target 42,984, with a maximum of 45,993 and minimum of 39,975 •Wednesday, August 27: Target 43,007, ranging between 46,017 and 39,997 •Thursday, August 28: Target 42,727, with a range of 45,718 to 39,736 •Friday, August 29: Target 42,082, between 45,028 and 39,136 Major Market Drivers This Week Federal Reserve Policy Impact The most significant catalyst for Japanese markets this week stems from Fed Chair Jerome Powell’s dovish Jackson Hole speech, which opened the door to a September rate cut. This has created a favorable environment for risk assets globally, with increased prospects for US monetary easing acting as a tailwind for Japanese tech stocks. The speech led to a surge in the yen, which rose 1% against the dollar as investors anticipate the rate gap between Japan and the US will narrow. While this currency strength may pressure export-oriented companies, it reflects expectations of continued monetary policy divergence. Bank of Japan Policy Outlook The Bank of Japan’s next monetary policy meeting is scheduled for September 18-19, 2025. Recent inflation data shows Japan’s core CPI remained at 3.1% in July, above the BOJ’s 2% target, reinforcing expectations for potential rate hikes. BOJ Governor Kazuo Ueda, speaking at Jackson Hole, highlighted that wage growth is spreading from large enterprises to smaller companies, with the tight labor market expected to continue exerting upward pressure on wages. This supports growing market speculation of another interest rate hike, possibly as early as October. Key Economic Data Releases Several important economic indicators are scheduled for release this week: Thursday, August 29: •Unemployment Rate (forecast: 2.5%) •Tokyo Core CPI YoY (previous: 2.9%, forecast: 2.7%) •Industrial Production MoM (forecast: -0.5%) •Retail Sales YoY (forecast: 2.2%) These data points will be crucial for assessing the health of Japan’s economy and the BOJ’s policy trajectory. Sector-Specific Outlook Technology Sector Nvidia’s earnings report on Wednesday will be particularly important for Japanese semiconductor and tech stocks. The company’s results often serve as a bellwether for the global tech sector, and Japanese chip-related stocks like SoftBank Group and Advantest have already shown strength in anticipation. Automotive Sector Japanese automakers continue to face headwinds from US tariffs, despite the recent trade agreement that reduced duties from 25% to 15%. The automotive sector remains under pressure, with exports to the US showing significant declines and companies absorbing tariff costs through price reductions. Banking Sector Financial stocks have been recent outperformers, benefiting from rising JGB yields as markets price in potential BOJ rate hikes. The 10-year Japanese government bond yield has risen to around 1.61%, hovering near its highest levels since 2008. Risk Factors and Challenges Several factors could weigh on market performance this week: 1.Currency strength: The yen’s appreciation may hurt export competitiveness 2.Global growth concerns: Slowing global demand could impact Japan’s export-dependent economy 3.Trade tensions: Despite the US-Japan trade deal, automotive tariffs remain elevated compared to historical levels 4.Technical resistance: The index faces significant resistance levels around 43,560 Weekly Forecast Summary The Nikkei 225 is expected to trade within a volatile range this week, with potential for modest gains if technical resistance levels are cleared. The index benefits from: •Fed dovish pivot supporting risk sentiment •Strong corporate earnings and governance improvements •Continued monetary policy normalization by the BOJ However, traders should remain cautious given the mixed technical signals, currency headwinds, and upcoming key economic data releases. The index’s ability to maintain levels above 42,000 will be crucial for sustaining the current upward momentum. Target range for the week: 42,000 - 44,000, with key resistance at 43,560 and support at 41,975.