EBC Markets Briefing | Japan stocks head south but optimism remains

Japan’s stock market fell below 38,000 on Wednesday as risk sentiment ebbed. Foreign investors were selling futures heavily but buying cash equities – a sign that stickier money did not lose confidence in the market.

The Nikkei will rise 7% to 40,000 by year-end before rallying to 42,000 by Q2 2025 and then to a record 42,500 by the end of 2025, suggesting more potential to rally, median forecasts from a poll of showed.

Most surveyed analysts predicted earnings would outperform expectations over the rest of this year. Around a half of them believed an additional correction of 10% or more by the end of September was likely.

The Nikkei surged to a peak above 42,000 on July 11 but then retreated sharply amid a dramatic rebound in the yen from its weakest since the end of 1986. US recession fears spurred greater selloff.

The index touched its lowest since Halloween and ended with its biggest one-day drop since Black Monday in 1987 on 5 Aug, before improved US data and the BOJ helped stabilised the market.

Goldman Sachs strategist said that the market has seen about seven “momentum pullbacks,” dropping about 7% to 8% from peak to trough, and it usually took about two months to recover from them.

The Nikkei stayed above 200 SMA so the upside momentum likely remains. The initial resistance lies at 50 SMA, above which could expose 39,000.

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