Nikkei 225 Forecast: Iran Tensions Pressure Japan Stocks After Record High

The Nikkei 225 Index corrected from the record highs as investors responded to increased geopolitical uncertainty. The decline appears to be a profit taking move following a bull phase. But it also indicates a general shift towards cautiousness among the Asia-Pacific markets.

One of the major concerns of Japan is the higher price of oil. Energy imports are a major component of Japan’s imports, making it more vulnerable to a rise in the price of oil. Investors are concerned about the pressures on the Bank of Japan, the increase in transport costs and softer company margins if oil stays near high prices. That puts a drag on exporters, manufacturers and technology companies in the Nikkei 225.

Overall, the Nikkei 225 index continues to be favorable on AI boom. But there might be a bit more volatility in the near term. Any escalation between Iran, Israel and the U.S. can cause a deeper pullback in Nikkei 225. This correction from the record highs is a healthy sign within the bull market. The Nikkei remains in an uptrend for now. But the key factor in the short-term direction will be oil prices, Wall Street weakness and Middle East tensions.

Nikkei 225 Reversal from Record Highs

The daily chart for Nikkei 225 shows that the index has hit strong resistance around 67,000. After hitting this resistance, the price pushed higher to 68,758 and then produced a key reversal candle on Wednesday.

The RSI indicator also shows overbought conditions, which indicate a further correction. This resistance is important due to the ascending channel pattern formed from the April 2025 bottom.

On the other hand, oil prices are also rebounding from the support zone of $90, which is resulting in a pullback in the Nikkei 225. The important support zones remain at 63,700 and 60,000, where the next rally may begin.

Nikkei Short-Term Correction May Build the Next Rally Base

The 4-hour chart for Nikkei 225 also shows the overextension in the short-term trend. This indicates that Japanese stocks need a correction before the next rally.

Despite this correction, the overall picture remains bullish. The rounding cup pattern also confirms the bullish pattern above the long term support of 50,000. The multiple price compressions before each breakout also confirm the bullish outlook.

The RSI indicator shows divergence in the Nikkei 225 at the record level of 68,000. This divergence also suggests a correction before the next rally. The 63,800 and 60,000 levels remain strong support zones. The next move in the Nikkei 225 will likely develop toward the 70,000 area once this correction is over.

Bottom Line

The long-term outlook for the Nikkei 225 remains strongly bullish on the AI boom. But the recent profit taking from the record highs is a healthy sign and signals an opportunity to enter for the next rally. Japanese stocks could stay under pressure in the coming days due to higher oil prices, Middle East tensions and weakness on Wall Street. But the market may find the short-term support at 63,800 and 60,000. A correction towards these levels could add the next base for another rally. If the index holds this support zone, the next rally will likely push the index to the 70,000 zone.