The Nikkei Average is expected to break out above a triangle consolidation pattern and test higher levels, while views are spreading that the forthcoming July–September earnings will be strong.
The Nikkei Average rose ¥1,945, or 2.9%, over the past week to ¥68,309, showing signs of recovery from the decline caused by multiple shocks. It has been noted that the index is beginning to break out above a triangle consolidation pattern, and is expected to enter a phase of testing higher levels again.
Against a backdrop of US inflation and interest-rate conditions and movements in oil prices, factors supporting gains in Japanese and US equities are reinforcing one another. In particular, some have suggested that the probability of an additional rate hike in October may have declined on views that growth in the US employment report was weaker than expected, while the pullback in crude oil futures is also said to have somewhat eased inflation concerns.
Concerns about investment related to AI have eased somewhat, while expanding cloud-business revenue is supporting market sentiment. In particular, the three major cloud providers, Google Cloud, Azure and AWS, are making increasingly significant contributions to earnings, and reports indicate that the earnings cycle within the AI ecosystem is becoming clearer.
Regarding the July–September earnings season now getting under way, the large-enterprise DI in the BOJ Tankan indicates strong conditions, with business sentiment improving in both manufacturing and non-manufacturing. Against this backdrop, views continue to hold that Japanese equities remain undervalued over the long term and have further room to rise.