Nikkei 225 Stages Dramatic Reversal on Weak US Jobs Data

Japan’s benchmark index mounted a thunderous comeback Friday, shaking off early losses to close sharply higher as investors recalibrated expectations for US monetary policy. The Nikkei 225 settled at 69,744.07, a gain of 1,010.92 points or 1.47%, after plumbing a session low of 67,609.49.

The catalyst: a surprisingly soft US payrolls report. Nonfarm payrolls rose by just 57,000 in June, well short of economist forecasts. Markets interpreted the miss as a green light for the Federal Reserve to ease off its tightening pedal, potentially even reversing course later this year.

Chips Lead the Charge

The turnabout was swift and broad. Early pressure from weakness in the global semiconductor space gave way to a furious rally in cyclicals and tech stocks, aided by better-than-expected Japanese services sector data. Advancers trounced decliners by 188 to 36, underscoring the breadth of the recovery.

Semiconductor names powered the advance. Rohm skyrocketed 14.18%, its highest close in 25 years, while SUMCO surged 11.30% and Screen Holdings added 4.90%. Capital rotated back into established AI supply-chain suppliers after a recent pullback in the sector.

Not every corner of the market participated. J. Front Retailing slid 3.91%, the worst performer on the index, and Otsuka Holdings shed 2.54%. The market’s preference is currently tilted squarely toward export-oriented industrial and technology companies, leaving domestic consumer names in the dust.

Technicals: 70,000 in Sight

Despite Friday’s fireworks, the index closed just below its 50-day moving average at 69,815.91. The 200-day average sits at 68,528.52, providing a solid floor. The 14-day RSI reads a neutral 53.1, suggesting room to run without overheating.

On the upside, the psychological 70,000 mark is the next hurdle, followed by the pivot level at 70,140. Downside support comes from the former record high at 68,782 — a level buyers have defended multiple times in recent sessions.

The weekly performance still ended positive at 0.55%, after a choppy week dominated by chip sector jitters and yen volatility. Over the trailing twelve months, the Nikkei has vaulted roughly 75%. It remains about 4% below its all-time high of 72,831.73 set on June 22.

Should investors sell immediately? Or is it worth buying Nikkei 225?

ETF Headwind and Busy Calendar

The coming week brings a technical headwind: analysts estimate selling pressure of about ¥1.7 trillion from rebalancing of Nikkei 225 and TOPIX-linked ETFs, as funds distribute cash in the wake of Japan’s earnings season.

On Monday, Japan’s Cabinet Office releases the Leading Economic Index, followed later by data on household spending and machine tool orders. The NATO summit in Ankara on July 7–8 could also sway defense stocks and overall risk appetite.

The currency market remains a wild card. USD/JPY hovers around the 163 level, near its 2024 high of 162.84. Any sharp yen move risks triggering intervention by Japan’s finance ministry, which would jolt the large exporters that dominate the index.

July 30: The BoJ Looms

The Bank of Japan’s policy meeting on July 30 is now the next major catalyst, arriving at a delicate economic juncture. A weak yen continues to weigh on sentiment, and traders are on edge for potential currency intervention.

Corporate earnings will also command attention. Fast Retailing and Seven & i Holdings report on July 9, kicking off a busy stretch that will overlap with the US earnings season, where big tech names take center stage.

Geopolitical developments add another layer. Ongoing US-Iran ceasefire talks, if successful, could lower global oil prices and reduce import costs for energy-dependent Japan.

At 23 times forward earnings, the Nikkei trades well above its historical average — a valuation that gives some strategists pause. Near-term direction hinges on whether retail earnings on Tuesday can satisfy the market and whether chart support at 68,700 holds. If so, a fresh assault on 70,000 looks increasingly plausible.