Nikkei 225 Forecast: U.S.-Iran Tensions and Bond Yield Test 60,000 Support

The Nikkei 225 was pressured as investors remained cautious amid renewed U.S.-Iran tensions. Trump’s threat to Iran sparked worries over another Middle Eastern escalation. The oil prices increased and put a new headwind to the global inflation outlook. This is significant for Japan because of its heavy reliance on imported energy. The increase in oil prices is negative for stocks because of the additional expense to businesses, impact on consumers, and loss of confidence in export-led stocks.

The chart below shows that the Nikkei 225 has been trading opposite to the oil prices since the US-Iran war. Any slight weakness i oil prices results in a strong upside move in the Nikkei 225. While any strength in oil prices causes a correction in the index.

Japanese government bond yields are also surging, which adds pressure on the Nikkei 225. The chart below shows that the yield on the 10-year JGB jumped significantly on rising global bond yields driven by inflation concerns. With higher yields, growth stocks may be less attractive and valuations may come under pressure. Technology, exporters and global demand are big factors in the Nikkei 225. The increase in yields, oil prices or geopolitical risks can easily lead to profit taking.

The sentiment toward the Nikkei 225 was also dampened by the weak tone in technology stocks in the United States. The drop in NVIDIA Corp. (NVDA), Advanced Micro Devices (AMD), Micron Technology Inc. (MU) and Intel Corp. (INTC) further put pressure on Japan’s chip makers as Japan’s stocks are associated with worldwide trade of AI and semiconductors. But the next move in the Nikkei 225 will depend on oil prices and whether geopolitical tensions relax or intensify into another significant escalation.

Nikkei 225 Technical Analysis: 60,000 Support Sets Up Fresh Bullish Rebound

The 4-hour chart for Nikkei 225 shows that the correction from 63,800 has hit the 60,000 support band. The index now looks for a rebound from this support zone. The orange zone highlighted in the chart below is the strong support area for the next move.

The formation of a rounding bottom pattern, followed by the price compression pattern, indicates that the next move in the Nikkei 225 will likely be stronger in the near term. Therefore, any correction in the Nikkei 225 will likely offer a buying opportunity for the next move.

This strong price action in Nikkei 225 is also seen using the daily chart below. The chart shows that the index has been trading within an ascending channel pattern. The formation of a V-shaped recovery above the 50,000 level and then the breakout above the 60,000 area indicates that the index has remained in a strong bullish trend.

Therefore, the correction back toward 60,000 will offer a buying opportunity to target 65,000 in the near term. The RSI is also landing at the mid-level as the index approaches the 60,000 level, which offers support.

Final Words

The Nikkei 225 is facing short-term headwinds due to the rise in oil prices, JGB yields and weak U.S. technology sentiment. The risks could make investors wary, particularly if inflation concerns rise amid continued tensions between the U.S. and Iran. But for the technical structure to be intact, the index has to remain above the 60,000 support level. If it rebounds from this range, it may continue the bull market cycle with a potential rally to 65,000.