Nikkei 225 Forecast: Japan Stocks Rally as AI Boom Boosts Sentiment

Asian Pacific market rallies on Friday as Investors respond to mixed messages from the Middle East. Iran’s new missile and drone launches maintained the geopolitical risk. But advances toward a temporary U.S.-Iran deal dampened the market. This supported the risk appetite and propelled the Nikkei 225 to hit 66,000.

The major factor is the lack of expectation for larger oil shock due to hopes for a pause in the U.S.-Iran conflict. It is important for Japan as the country is a highly energy import dependent nation. Lower war risk can help relieve inflation pressures, oil prices and corporate profits. This makes Japanese exporters, manufacturers and technology stocks more attractive to investors.

The strong performance of Wall Street also supported the Nikkei 225. Tech stocks climbed to fresh record highs and fueled renewed optimism about AI as the S&P 500 and Nasdaq ended the day at new records. This positive U.S. lead helped the sentiment on Japanese tech and growth stocks. But the risks of a renewed surge in Middle East tensions and huge spike in oil prices can keep the Nikkei 225 rally limited. The improvement in global risk appetite and hopes of resolution of the US-Iran conflict support the Nikkei 225.

Nikkei 225 Technical Analysis: Bullish Hammer Suggests Bullish Momentum

The daily chart of Nikkei 225 shows that the index has formed a bullish hammer candle above the 63,800 support level. This bullish hammer candle indicates strength in the Nikkei 225 despite the overbought conditions in the short term. Therefore, a break above 67,000 will likely push the Nikkei 225 toward the 70,000 area.

The 4 hour chart also shows the bullish price structure. The chart shows the formation of a cup pattern above the 50,000 area, followed by price compression between 58,000 and 60,000. A breakout above 60,000 with a V-shaped recovery above the 60,000 area suggests continued upside in the short term.

The retracement toward the 63,800 support indicates a positive price structure and suggests further upside in the short term. The RSI hit the midline as the price hit 63,800 yesterday.

The V-shaped recovery further supports the bullish point of view for Nikkei 225 as seen in the hourly chart below.

Despite this positive price action, the monthly chart below shows that the Nikkei 225 has entered a parabolic move after the breakout above the 45,000 level in September 2025.

This parabolic move is pushing prices to record highs. In April, the market gained 12.6% and in May 2026, it has gained 10.33% so far.

This is a strong gain, which may trigger a correction before the next rally higher. However, the bullish momentum does not show any signs of correction in the short term.

Any major correction will likely find support at 60,000. A break above 67,000 in the short term will likely push the Nikkei 225 toward the 70,000 area.

Bottom Line

The rising appetite for risks, record Wall Street rally and expectations of the resolution of U.S.-Iran conflict support the Nikkei 225. Meanwhile, the reduction of oil shock concerns helps Japan, as it eases the inflation pressure and improves corporate profitability. The overall picture remains bullish as long as the index remains above the 63,800 support level. The move above 67,000 will likely create a new target of 70,000.

Read more: Oil Rebound Triggers Pullback In Nikkei 225 After 67,000 Target