Nikkei 225 Forecast: Index Holds Above 70,000 as JGB Yields Rise

The latest macroeconomic data continue to support expectations of further Bank of Japan monetary tightening. In August, real wages increased by 1.5% year-on-year, slowing from a revised 2.0% increase in July but remaining positive for an eighth consecutive month as easing inflation improved household purchasing power.

Average nominal wages, or total cash earnings, increased by 3.8% to 311.364 thousand yen, while regular pay also rose by 3.8%, matching the revised July pace. The continued improvement in real wages strengthens the case for the Bank of Japan to gradually normalise monetary policy after raising its benchmark rate to 1.25% in September.

Although another increase at the October meeting is considered less likely, markets continue to expect that the regulator could tighten policy again in December if wage and inflation data remain strong. Recent comments from Bank of Japan officials have also indicated that underlying inflation is moving closer to the central bank's 2.0% target.

At the same time, Japanese government bond yields remain elevated, limiting stronger gains in equities. The yield on benchmark 10-year government bonds is trading near 3.095%, while the 20-year yield is close to 3.98% and the 30-year yield remains around 4.21%, after recently reaching record levels above 4.23%.

At the latest close, the strongest positive contributions to the Nikkei 225 came from SoftBank Group, Taiyo Yuden, Suzuki Motor, Kikkoman and Daikin Industries. The largest negative contributions came from Tokyo Electron, Advantest, Fast Retailing, Kioxia Holdings and TDK.

As discussed in our previous Nikkei 225 forecast, rising Japanese government bond yields and expectations of further Bank of Japan policy normalisation remain important factors limiting the upside in Japanese equities.

Support and resistance levels

On the daily chart, the trading instrument is retreating from the resistance line of the descending channel with dynamic boundaries of 67100.0–56700.0.

Technical indicators maintain a buy signal: the AO histogram is forming corrective bars, while the fast EMAs of the Alligator indicator are rising above the slow ones and gradually widening their fluctuation range.

Support levels: 68920.0, 65390.0.

Resistance levels: 71090.0, 74620.0.

Nikkei 225 trading scenarios and price forecast

Long positions may be opened after the price rises and consolidates above 71090.0, with a target at 74620.0. Stop-loss — 70000.0. Estimated implementation period: 7 days or more.

Short positions may be opened after the price declines and consolidates below 68920.0, with a target at 65390.0. Stop-loss — 70000.0.