Nikkei 225 Forecast: Tech Selloff Hits Japan Stocks After AI Rally

The Nikkei 225 ended down on Friday as investors sold heavily in key areas. The declines in paper and pulp, transportation and telecommunication stocks led the index down by 5.50%. The decline reflects investors’ reluctance to buy after a recent surge in Japanese stocks. An increase in the Nikkei Volatility Index also suggests increased uncertainty in the options market.

Japan Stocks Fall as Tech Selloff Hits Nikkei 225 Rally

The weakness in semiconductor related stocks had the biggest impact on sentiment. The chart below shows that the Tokyo Electron dropped by 6.61% while the Advantest Corp. dropped by 4.99%. These stocks were susceptible to pressure in the technology supply chain. The index tends to lose momentum when the major chip stocks pull back.

But the market remains strong despite this sell-off. Tokyo Stock Exchange saw more rising stocks than declining ones which indicates that the drop in Nikkei 225 was due to the large-cap stocks. The stocks of Japan Steel Works, Trend Micro and T&D Holdings were all strong, with T&D hitting a 5-year high at 4,475. The lower oil prices can also aid Japan’s economy in the long term. But the index needs to reflect the strength of the tech and export stocks.

Nikkei 225 Technical Analysis: 63,700 Support Comes Into Focus

The daily chart for Nikkei 225 shows that the index dropped from the resistance of 67,000 to the support at 63,700. The ascending channel pattern highlights this resistance. This ascending channel supports the Nikkei 225 since April 2025.

The immediate support in Nikkei 225 remains at 63,700, which was hit on Friday last week. A break below this level will push the index towards the strong support region of 60,000.

The Nikkei 225 index will likely rally again after hitting the 60,000 region to move towards 70,000.

Last week’s drop in Nikkei 225 has pushed the RSI below the midline. This indicates that the index may remain weak in the short term before the next rally begins.

The 50-day SMA remains at 61,900, which keeps the trend positive for Nikkei 225. The 60,000 to 62,000 level remains the strong key support in Nikkei, which was the resistance of March 2026.

Nikkei 225 Signals Further Risk Toward 60,000 Support

The 4-hour chart also shows the strong drop in Nikkei 225 due to the formation of divergence. This divergence was discussed in the previous article, which called for a strong correction in Nikkei 225 towards 63,800.

A further drop below 63,800 will push Nikkei 225 towards the 60,000 area, which is the neckline of the cup pattern.

What’s Next for the Nikkei 225 After the Tech Selloff?

The Nikkei 225 appears to have been hit by the sharp tech selloff and is under short-term pressure. But the overall picture remains bullish as the AI rally is still not over. The index has hit the first support zone of 63,700 as discussed previously. A break below this level will likely push the prices towards the 60,000-62,000 zone. As long as the 60,000 holds, the index may turn higher towards the 70,000 on the AI boom.

Read more: Tokyo Electron Rally Offsets SoftBank Losses