Nikkei 225 Forecast: Advantest and Tokyo Electron Lead Push Toward 70,000

Nikkei 225 reached new high as investors focus on risk appetite and Middle East news. The S&P 500 closed above 7,600 for the first time, which provided Asian stocks a boost. The Japanese markets also gained from a shift in the global markets towards large-cap stocks and AI-related companies. This is important because the Nikkei has considerable weight in the technology, semiconductors and high priced index leaders. The Nikkei typically responds promptly to global investors’ demand for growth and AI stocks.

Nikkei 225 Hits Record High as AI Stocks Lead Rally

The Strait of Hormuz risk is also a big warning for Japan. The higher oil prices can affect margins, consumer spending and inflation expectations because of Japan’s high dependence on oil. Traders are still pricing in a supply risk premium as WTI and Brent rose again to $95 and $100, respectively. If oil prices continue to rise, import costs will rise as well. This will lead to a depreciating yen, further strain on domestic businesses and make monetary policy more challenging for the Bank of Japan.

The Nikkei’s strength suggests that investors believe that the global equity trend is absorbing the geopolitical risk. If U.S. tech stocks continue to rally, then the big index drivers such as Fast Retailing, Advantest, SoftBank and Tokyo Electron can continue to push the benchmark higher.

The chart below shows that Advantest and Tokyo Electron have produced constructive price action. Tokyo Electron has broken the key level and gained over 10% on Wednesday. This surge will likely drive other semiconductor stocks within the same theme.

Nevertheless, this rally in Nikkei 225 depends on two factors. One is that oil prices do not break new highs, and the second is that the US markets maintain the rally. As long as both circumstances remain, the Nikkei can continue its record run. The index can offer a profit-taking opportunity after the strong surge during the last few days if oil prices rally above $100.

Nikkei 225 Technical Analysis: 70,000 Breakout Comes Into Focus

The long-term outlook for the Nikkei 225 remains strongly bullish. The index gained 12.60% in April and 11.29% in May and now the index is ready to surge further in June. This strong bullish momentum indicates that something is building behind the surface, and the next move might be much stronger than the current one.

The immediate target remains 70,000, but based on the current bullish momentum, the index may break 70,000 to reach the 73,000 area.

This strong bullish momentum is also evident on the daily chart. The index is now breaking the 67,000 resistance level within the ascending channel pattern. If the index closes above 68,000 on Wednesday, it will likely continue to rally towards the 70,000 area. The immediate target remains 70,000.

Nikkei 225 formed a V-shaped recovery pattern above the 200-day SMA. Then the index formed a support at 60,000 after the breakout of the V-shaped pattern. This indicates a sustained and strong rally in the Nikkei 225.

The short-term structure for the Nikkei 225 is very good. The index continues higher after another V-shaped recovery pattern.

Bottom Line

Nikkei 225 trend remains bullish as the price has broken above 67,000 after forming the V-shaped recovery from 200-day SMA. If the price closes above 68,000, then the price could continue to push higher toward 70,000. A breakout above 70,000 could extend the rally toward 73,000.

But the primary threat is oil. Japan is a big importer of energy and any significant spike above $100 could have a negative effect on margins, consumer spending and the yen. For the time being, the overall picture is bullish as long as markets in the United States remain steady and oil is not causing a new inflationary blow.

Read more: AI Boom Pushes Japan Stocks Toward 70,000