【Japan】Nikkei 225 Expected to Break Out of Current Box Range, but ‘Uncertainty Over Trump Auto Tariffs’ and ‘July 20 Upper House Election’ Pose Upside Pressure Factors!

The Nasdaq Composite Index has recovered to its pre-attack-on-Iran level.
Let’s start with the US market this week as well. On June 16, the NY Dow rebounded, closing at 42,515.09 dollars, up 317.30 dollars (0.75%) from the previous weekend. The Nasdaq Composite Index also rebounded, closing at 19,701.21 points, up 294.39 points (1.51%) from the previous weekend.
On June 16, The Wall Street Journal reported that “Iran is stopping hostile acts and seeking to resume talks on its nuclear development program” and that “Arab countries are prepared to come to the negotiating table if the US does not participate in attacks on Iran.” This led to a retreat in caution over Middle East geopolitical risks and stocks were bought. The Nasdaq Composite Index has recovered to its level before Israel’s attack on Iran.
Incidentally, the US stock volatility index (VIX), known as the “fear index,” on June 16 was 19.11, down 1.71 (8.21%) from the previous weekend, ending trading below 20, which is considered a level where investor caution is heightened.
Also, the Fear & Greed Index on June 16 was 62, indicating “Greed.” The Fear and Greed Index, developed by CNN Money, is an indicator showing “whether stock market movements are appropriate,” fluctuating within a range from 0 (“Extreme Fear”) to 100 (“Extreme Greed”).
Looking at these VIX and Fear & Greed Index numbers, it seems that as of June 16, the US stock market was not overly concerned about Middle East geopolitical risks.
Of course, if the situation develops into a crisis exceeding market expectations, such as Iran deciding to blockade the Strait of Hormuz, the market environment would change drastically. However, many investors seem to view “that possibility as low.”
This is because the crude oil futures price (WTI near-month July contract) on June 16 ended trading at $71.77 per barrel, down $1.21 (1.7%) from the previous weekend. In other words, the strengthening view that the conflict between Israel and Iran is gradually calming down is prompting selling in crude oil futures. Therefore, going forward, unless crude oil futures prices surge sharply, global financial markets are unlikely to be shaken.

In the Japanese market, stocks of companies whose performance is boosted by heightened Middle East geopolitical risks, such as resource-related stocks and shipping stocks, were bought. Meanwhile, on June 16, the Nikkei 225 average was 38,311.33 yen, up 477.08 yen (1.26%) from the previous weekend.
In the foreign exchange market, the “buy-the-dollar-in-times-of-trouble” trend led to a weaker yen and stronger dollar, boosting export-related stocks. Expectations for higher resource prices led to buying of resource-related stocks like trading company shares. Furthermore, speculation about rising freight rates due to escalating Middle East tensions led to buying of shipping stocks. In conclusion, the Nikkei 225 was lifted by buying of stocks of companies whose performance is boosted by heightened Middle East geopolitical risks.
There is a famous market saying, “Buy on distant wars, sell on nearby wars.” The movement in the Tokyo stock market on June 16 perfectly fit this adage.
Furthermore, the Nikkei 225 average continued to rise the next day, June 17, closing at 38,536.74 yen, up 255.41 yen (0.59%) from the previous day.

Recently, Japanese stocks have continued to show firm performance. By investor category, foreign investors and business corporations (through share buybacks) were the main buyers, but now individual investors have also turned net buyers. This is because, according to stock trading trends by investor category for the first week of June (2nd-6th), individuals were net buyers of 161.8 billion yen. This is the first net buying by individuals in 9 weeks.
During the same period, foreign investors were net buyers of Japanese stocks by 398.5 billion yen. This marks 10 consecutive weeks of net buying, with a cumulative net buying of 3.8729 trillion yen during this period. Business corporations were also net buyers by 344.6 billion yen. This also marks 10 consecutive weeks of net buying, with a cumulative net buying of 2.7655 trillion yen during this period.
Going forward, it’s unclear whether individual investors will continue net buying. However, unless the external environment deteriorates significantly, it is highly likely that “foreign investors’ buying of Japanese stocks” and “share buybacks by business corporations” will continue. Therefore, large-cap stocks expected to be bought by domestic and foreign institutional investors are likely to remain firm.
Looking at the credit balance ratio, it has decreased from 9.63 times as of April 4 (when the market plunged due to heightened Trump tariff risks) to 4.90 times as of June 6. The credit buying balance also decreased from 4.4696 trillion yen as of April 4 to 4.0142 trillion yen as of June 6, indicating that credit supply and demand conditions remain favorable.
Therefore, regarding stocks with high individual investor participation, sharp declines related to margin calls are unlikely to occur, and favorable supply-demand market conditions are recognized as continuing. As a result, stocks in the Standard and Growth markets are expected to perform firmly.

However, from a technical perspective, while the Nikkei 225 appears firm at the bottom, it is highly likely that upside resistance will continue. Although a “golden cross” occurred on May 29 when the 25-day moving average crossed above the 75-day moving average, it has been difficult to say that it has been consistently trading above the 200-day moving average, which indicates the long-term trend.
Therefore, while the medium-term trend is “upward,” the long-term trend is recognized not as “upward” but as “sideways.” In conclusion, the main scenario for the Nikkei 225 remains “box range movement.” Roughly speaking, a box of around “38,000 yen ± 1,000 yen” is assumed.
When this box is broken, it is slightly more likely to move “upwards” rather than “downwards.”

In particular, a 25% additional tariff has been imposed on automobiles, a key Japanese industry, since April. If prolonged, significant impact on the industry is feared. The automotive industry has a broad base, with about 10% of Japan’s total workforce involved. Its impact is extremely large, not only on corporate profits but on the entire Japanese economy.
Therefore, until the uncertainty over Trump tariffs on automobiles is completely dispelled, upside resistance for Japanese stocks as a whole is expected to continue.
Also, the House of Councillors election is expected to be officially announced on July 3, with voting and counting on July 20. No one can predict the election results. Therefore, until the results are clear, Japanese stocks are highly likely to remain stagnant.
Thus, for the time being, it is recommended to target theme stocks that are less affected by Trump tariffs and domestic politics, such as “cryptocurrency,” “drones,” “defense,” “sewage systems,” and “AI.”