Nikkei 225 holds near record highs as policy optimism and AI momentum lift sentiment

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Nikkei 225 policy stability and AI optimism sustain record run

Highlights

- Nikkei 225 closes at 47,951, staying near record highs after breaking key resistance last week.

- Policy stability under Sanae Takaichi and a weaker yen continue to boost Japanese equities.

- AI sector gains and strong foreign inflows support the long-term bullish outlook for Japan’s market.

The Nikkei 225 continues to trade in a strong, well-defined uptrend. Last week, the index broke decisively above its rising wedge structure, surging through the 46,500–47,000 resistance zone and entering uncharted territory. The breakout confirmed that the long-term bullish structure remains intact, characterized by consistent higher highs and higher lows since April.

Nikkei 225 index dynamics (Source: TradingView)

The 20-day exponential moving average at 46,045 provides dynamic support, while the 50-day EMA at 44,899 and 100-day EMA at 43,544 offer deeper technical backing. As long as the index stays above these levels, the underlying trend bias remains positive.

However, momentum indicators are signaling potential exhaustion. The relative strength index has climbed to 75, indicating overbought conditions. While this reflects strong underlying momentum, it also increases the likelihood of near-term consolidation or mild profit-taking. A pullback toward the 46,500 area would be considered a healthy correction rather than a reversal, potentially setting a stronger base for the next leg higher toward 49,000–50,000.

Policy support and sector performance

The fundamental landscape continues to favor Japanese equities. Takaichi’s leadership win has bolstered investor expectations that the Bank of Japan will maintain its ultra-accommodative policy stance even as major central banks, including the Federal Reserve and European Central Bank, prepare for further easing. This policy divergence continues to pressure the yen, providing a competitive edge to Japanese exporters and adding strength to the Nikkei.

AI-related optimism remains a key driver of sectoral performance. The rally in global technology shares following AMD’s landmark AI chip deal with OpenAI spilled over into Japanese markets, boosting major players like SoftBank, Fujikura, and IHI. However, selective profit-taking in high-growth technology names limited broader index gains.

The combination of monetary policy stability, export tailwinds, and participation across industrial and technology sectors underscores the structural resilience of Japan’s equity market. Market analysts note that investor flows into Japan continue to rise, reflecting confidence in both its earnings outlook and policy continuity.

Outlook

The Nikkei 225 remains positioned for continued strength in the medium term. While overbought readings suggest that a short-term pause may be imminent, any retracement toward the 46,500–47,000 range is expected to attract buyers. The broader structure continues to point toward a potential advance toward the psychological 50,000 milestones, a level that could serve as the next major target for bullish traders.

Political stability, accommodative monetary policy, and rising foreign inflows form the backbone of Japan’s equity story heading into the final quarter of the year. As long as policy remains supportive, and the yen stays weak, dips in the Nikkei are likely to be viewed as opportunities rather than risks.

Earlier analysis projected the Nikkei’s breakout above 47,000 as a key inflection point confirming long-term bullish momentum. This outlook remains valid, with current market behavior aligning with expectations for steady, policy-driven gains.

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