Today's Stock Market Check | Confirming support levels while Japanese and US interest rates cap the upside

The Japanese market continued to fall on September 29. The Nikkei 225 index fell by more than 1,100 yen at one point, but rapidly narrowed its losses toward the close. Although the US market last night showed some signs of recovering from the previous day’s decline, there was no clear sense of direction.

The market is being weighed down by long-term interest rates in Japan and the US. The US 10-year Treasury yield is around 5.25%, and the Japanese 10-year government bond yield is also at a high level exceeding 3%. As long as interest rates continue to rise, profit-taking is likely to occur at the upside even if stock prices rebound.

Today is the end of the month and the end of the quarter. Japanese stocks are prone to fluctuations driven by futures, so I want to confirm whether they can maintain the 65,000 yen level rather than judging a bullish turn based solely on morning gains.

🗽 US Stocks

In the US market on September 29, although major indices showed some signs of recovery from the previous day’s decline, overall price movements remained limited. There was little aggressive buying, and the market traded sideways while remaining cautious about high interest rates.

The fact that US stocks did not collapse significantly is a reassuring factor for Japanese stocks. On the other hand, because the US 10-year Treasury yield is around 5.25%, the upside for NASDAQ and AI/semiconductor stocks is likely to be heavy.

It is important not only for stock prices to rebound but also for long-term interest rates to decline. If stock prices return while interest rates remain high, such a rebound is unlikely to be sustainable.

💴 US Interest Rates and Economic Indicators

The US 10-year Treasury yield is at a high level of around 5.25%. As the yield obtainable from safe-haven government bonds rises, stocks are required to have higher profitability. This acts as a factor that suppresses stock valuations, especially for high-tech stocks that factor in future growth expectations in advance.

Today, the US is scheduled to release the ADP employment report, personal consumption expenditures and the PCE price index, and the final GDP figure for the April-June quarter. If strong numbers continue, there is a possibility that US interest rates will rise again due to expectations of a prolonged tightening by the Fed.

Conversely, if the numbers settle down, it will support stock prices through a decline in the US 10-year Treasury yield. Rather than the announced figures themselves, I want to check the reaction of US interest rates and NASDAQ futures after the announcement.

💱 Dollar-Yen

The dollar-yen is trading in the 157 yen range. While high US interest rates support the dollar, if the yen depreciates rapidly, concerns about rising prices in Japan and additional interest rate hikes by the Bank of Japan will intensify.

A weak yen is a tailwind for export-related stocks, but this time it is accompanied by high crude oil prices and rising domestic interest rates. Since import costs and corporate financing burdens are also increasing, it is not a simple positive factor for Japanese stocks as a whole.

If it settles in the 157 yen range, it will support export stocks. If it surges toward 158 yen, concerns about intervention by authorities and rising interest rates are likely to intensify.

🔥 Crude Oil and Middle East Situation

Although crude oil prices have settled down slightly from the previous day’s rise, they remain in a high range against the backdrop of the situation in the Middle East. High crude oil prices push up corporate costs and prices, and are a factor that pushes back US interest rate cuts.

If crude oil rises again, the flow of ‘high crude oil prices -> inflation concerns -> rising long-term interest rates -> capping stock price upside’ will strengthen. Conversely, if crude oil settles down, the pressure on interest rates for Japanese and US stocks will ease.

Japan is an energy-importing country, and in a phase where high crude oil prices and a weak yen overlap, the burden on domestic demand stocks is significant. It is necessary to look at crude oil prices and the dollar-yen as a set.

🗾 Previous Day’s Japanese Stocks

On September 29, the Nikkei Stock Average closed at 65,481.27 yen, down 396.35 yen from the previous day. The TOPIX ended at 4,041.13, down 70.87 points.

The Nikkei average fell to as low as 64,699 yen at one point but recovered to the 65,000 yen level toward the close. The impact of dividend ex-rights is estimated at approximately 380 yen for the Nikkei average, meaning the actual decline on a closing price basis was modest.

However, the TOPIX fell 1.72%, and more than 1,300 stocks declined on the Tokyo Stock Exchange Prime Market. The fact that selling spread to a wider range of stocks than the index suggests cannot be overlooked.

The yield on the 10-year Japanese government bond is around 3.09%. While domestic interest rates above 3% act as a tailwind for banks and insurance companies, they are a headwind for real estate, REITs, and growth stocks. I view yesterday’s decline as reflecting not only dividend ex-rights but also caution regarding rising domestic interest rates.

📈 Japanese Stock Futures

Nikkei average futures saw some buying after the Japanese market closed and traded above yesterday’s cash market closing price. The fact that US stocks did not collapse significantly also provides support.

On the other hand, it is too early to judge a return to a bull market based solely on higher futures. Prices are prone to volatility due to month-end and quarter-end supply and demand, so it is important to see if buying spreads to cash stocks after the opening.

If not only semiconductor stocks but also TOPIX-type domestic demand stocks and financial stocks are bought, the market recovery is likely to be stable. If only the Nikkei average rises driven by futures, caution is required regarding chasing the upside.

🎯 Today’s Japanese Stock Market Forecast

For today’s Nikkei average, I anticipate a scenario where the calmness of US stocks and the recovery in futures provide support, while Japanese and US long-term interest rates cap the upside.

The expected range for today’s Nikkei average is 64,900 yen to 66,500 yen.

The central range is expected to be 65,400 yen to 66,100 yen.

Conditions for an upside surprise include the US 10-year Treasury yield falling toward 5.20%, crude oil prices stabilizing, dip-buying entering semiconductor stocks, and the Japanese 10-year bond yield not rising above 3.1%. If these conditions are met, there is a possibility of consolidating in the 66,000 yen range.

Conditions for a downside risk include Japanese and US interest rates rising again, the dollar-yen moving toward 158, Chinese stocks weakening, and selling continuing across a wide range of TOPIX stocks. If it clearly breaks below 65,000 yen, I would be wary of a move to re-test yesterday’s low of around 64,699 yen.

The basic trend is ‘attempting an autonomous rebound due to the calmness of US stocks, but the upside is heavy due to high Japanese and US interest rates.’ It will be a day to check not only the extent of the stock price recovery but also whether the US 10-year Treasury yield around 5.25% and the Japanese 10-year bond yield above 3% decline.

※ This article is a record of personal market observations and does not recommend the buying or selling of any specific stocks or financial products.