Stock Market in Japan May Arrest the Decline on Tuesday
Japanese Economy and Nikkei 225: A Cautious Optimism Amidst Global Uncertainties
The Japanese economy is currently experiencing a cautiously optimistic outlook, with moderate growth expected in the coming years. According to recent economic forecasts, the country's Real GDP growth is anticipated to be around +0.6% for FY2025 and +0.7% for FY2026. This revised growth is attributed to the positive impacts from recent trade agreements, notably the broad tariff agreement reached with the United States.
Inflation in Japan remains persistently above the target, supported by a tight labor market and structural labor shortages. Core inflation is forecasted to be around 2.5–3.0% for FY2025 but may moderate somewhat in the following years. The Bank of Japan (BoJ) anticipates growth moderation in the near term due to global trade policy impacts but expects a return to moderate growth as overseas economies stabilize.
Monetary policy is expected to normalize gradually, with the BoJ likely to move interest rates slowly upwards from the current 0.5% toward a more neutral stance near 1% in response to sustained inflation pressures and reduced trade uncertainty.
The Nikkei 225, Japan's equity market, has shown resilience supported by improved corporate sentiment following tariff agreement news and ongoing domestic demand strength. Despite some volatility in capital expenditures and political uncertainties, the positive revisions to growth and easing trade tensions along with expected monetary policy normalization suggest a supportive environment for Japanese equities.
However, the Japan stock market has experienced a decline in two consecutive sessions, with the Nikkei 225 losing nearly 780 points or 1.8 percent. This drop can be attributed to weaker than expected jobs data and concerns about the economic impact of President Donald Trump's new tariffs.
On Wall Street, the rally was due to traders seeking to purchase stocks at reduced levels following the recent sell-off. The Dow, NASDAQ, and S&P 500 all opened and closed higher on Monday, recovering from recent losses.
Looking forward, the global forecast for Asian markets remains positive due to bargain hunting and optimism for an interest rate cut. The Nikkei 225 is currently close to the 40,300-point plateau. The Bank of Japan will release the minutes from its June 16-17 monetary policy meeting later this morning.
Crude oil continued to decline on Monday due to oversupply concerns and fears of a tariff-induced slowdown by the global economy. West Texas Intermediate crude for September delivery was down $1.06 or 1.57 percent at $66.27 per barrel on Monday.
In summary, the Japanese economy and the Nikkei 225 are currently exhibiting a cautiously optimistic outlook, with moderate growth expected and inflation persistently above the target. Monetary policy is expected to normalize gradually, and the Nikkei 225 is showing resilience despite some volatility. However, external risks and uncertainties persist, particularly in the context of ongoing trade tensions and political uncertainties.
This outlook draws on recent Dai-ichi Life Research economic forecasts, Bank of Japan projections, Vanguard analysis, and Capital Economics commentary from mid-2025.
Technology plays a crucial role in Japan's economic growth, given the nation's advanced technological sector and numerous tech-focused companies listed on the Nikkei 225.
Recent inflationary pressures in Japan may impact the pricing of technological goods and services, potentially leading to changes in consumer behavior and business decisions within the tech sector.
