Nikkei 225 extends gains, currently up 2.5% at 40,774.92 points.

Nikkei 225 extends gains, currently up 2.5% at 40,774.92 points.

The Nikkei 225, Japan's primary stock market index, has continued its upward trajectory, closing at 40,774.92 points on July 2, 2025, marking a 2.5% increase from its previous close. This performance underscores the resilience of the Japanese stock market amidst geopolitical tensions and fiscal concerns.

The recent rally is attributed to several factors. Firstly, the Nikkei 225 has outperformed globally, gaining 28% since April 7, 2025, and trailing only South Korea's KOSPI [1]. This strong performance is partly driven by post-tariff optimism, despite Japan being targeted by U.S. trade measures.

Secondly, supportive economic and earnings data have bolstered investor confidence. The Citigroup Surprise Index and Earnings Revisions Index for Japan have shown positive trends, indicating better-than-expected economic performance and earnings upgrades [1].

Technical analysis also suggests a bullish trend. The Nikkei 225 staged a bullish breakout from a continuation flag pattern, which could signal a potential multi-month uptrend [1]. The index has also shown resilience, retesting major swing lows and staging a magnificent rally since April.

However, the recent spike in the 30-year Japanese Government Bond (JGB) yield has created headwinds. The JGB yield rose by 45 basis points (bps) from its July low of 2.75% to 3.2%, reflecting market anxiety over Japan's upcoming upper-house election and potential expansive fiscal policies [1]. This rise underscores the fragile balance between Japan's fiscal commitments and monetary stance.

Despite these challenges, the Nikkei 225 has shown remarkable resilience. The index has yet to break above its all-time high level printed in July 2024. The current uptrend suggests that the market is optimistic about Japan's economic fundamentals and the potential for further gains.

Investors should keep a close eye on the upcoming upper-house election on July 20, 2025, as political outcomes could significantly impact the stock market. If the ruling coalition loses its majority, it could lead to fiscal restraint or central bank intervention, potentially affecting the bond yield and stock market performance.

References:
[1] https://www.investing.com/analysis/nikkei-225-forecast-start-of-new-mediumterm-bullish-trend-amid-rising-jgb-yields-200663911