The first half of 2025 has been a period of dynamic shifts for global financial markets, and Japan’s benchmark Nikkei 225 has certainly been no exception. While the year began with some volatility, the latter part of the second quarter, particularly May and June, witnessed a remarkable Nikkei 225 bullish trend. This resurgence has propelled the index to significant highs, sparking optimism among investors and prompting a closer examination of the underlying forces at play. Understanding the nuances of this upward trajectory is crucial for anyone seeking to comprehend the Japanese market’s current momentum and future prospects.

The Trajectory of the Nikkei 225 in H1 2025

The initial months of 2025 presented a mixed picture for the 日経 ２２５. After touching a 52-week low in April, the index embarked on a notable recovery. As of late June, while the year-to-date performance still reflected a modest decline of approximately 3.74%, the ability of the Nikkei 225 to not only recover but also surpass the significant 40,000-point mark for the first time since January underscored a robust underlying resilience. This recovery laid the groundwork for the more pronounced Nikkei 225 bullish trend observed in the subsequent months.

May proved to be a pivotal month, with the index recording its second consecutive monthly gain, climbing above 38,000 and closing at 37,965. This momentum accelerated into June, as the Nikkei 225 decisively broke out of a seven-week trading range, reaching a four-month high. This surge pushed the index past the critical 20% threshold from its April lows, formally entering technical “bull market” territory. Such a significant upswing in a relatively short period highlights the confluence of powerful factors driving investor confidence in Japanese equities.

Key Drivers Behind the Bullish Momentum

Several interconnected factors contributed to the pronounced Nikkei 225 bullish trend observed in May and June 2025. These drivers encompass a mix of global economic sentiment, domestic corporate health, and the intricate dance of international trade relations.

Good News from Global Trade Negotiations 

Firstly, optimism surrounding global trade negotiations played a significant, albeit complex, role. In May, there was a palpable sense of relief and anticipation in the market stemming from reports of a potential US-China agreement to reduce additional tariffs, alongside a prospective US-UK trade deal. While not directly involving Japan, this broader positive sentiment regarding the de-escalation of trade tensions globally provided a conducive environment for risk-on assets, including Japanese equities.

However, the narrative surrounding US-Japan trade negotiations specifically requires a more nuanced understanding. As of late June and early July, discussions between the US and Japan were reportedly facing a deadlock, particularly concerning tariffs on automobiles and “reciprocal” tariffs. President Trump has continued to issue threats of higher tariffs on Japanese exports, even suggesting an increase to 30%-35% from a proposed 24% as the July 9 deadline loomed.

Despite these persistent threats, market analysts have observed a curious resilience in the Nikkei 225. Many investors appear to be interpreting Trump’s tariff rhetoric as largely “noise,” expecting a pattern of eventual de-escalation or extension of deadlines, a strategy seen in past trade disputes. The prevailing belief that too much is at stake for the US to abandon the Japanese negotiation table may be contributing to the market’s ability to largely shrug off these concerns, rather than directly benefiting from positive outcomes in the negotiations themselves during this period.

Depreciation of the Japanese Yen

Secondly, the continued depreciation of the Japanese Yen in May served as a significant tailwind for the Nikkei 225. A weaker yen makes Japanese exports more competitive on the global stage, directly boosting the earnings outlook for Japan’s export-oriented corporate giants. This in turn attracts foreign investment, bolstering demand for Japanese stocks. While the yen’s movements can be volatile, its general trend in May was supportive of the Nikkei 225 bullish trend.

Buyback Programs

Thirdly, strong corporate earnings and robust share buyback programs have been fundamental pillars of support. Many prominent Japanese companies, including major players like Mitsubishi UFJ Financial and Toyota Motor, announced impressive earnings results during this period. Such positive financial performance directly enhances investor confidence in the profitability and fundamental health of Japanese businesses. Beyond earnings, an increasing number of TOPIX constituent companies announced share buyback initiatives. These programs signal a commitment from companies to return capital to shareholders and improve per-share metrics, which is typically viewed very positively by the market and can act as a powerful catalyst for share price appreciation. The sheer volume of these buybacks indicates a strategic focus on capital allocation that instills further confidence.

Investment from Foreign Sources

Fourthly, a notable surge in foreign investor activity played a crucial role. Foreign investors were significant net buyers of Japanese equities in May 2025, marking several consecutive weeks of net inflows. This sustained interest and capital infusion from overseas investors provide a strong demand-side boost to the Japanese stock market. The confidence of international capital in Japan’s economic prospects and corporate governance reforms has been instrumental in fueling the Nikkei 225 bullish trend.

Global monetary policy expectations

Lastly, global monetary policy expectations, particularly concerning the US Federal Reserve (Fed), provided a supportive backdrop. Market participants worldwide, including in Japan, were increasingly pricing in the likelihood of the Fed cutting interest rates in the latter half of 2025. Lower interest rates in the US can diminish the relative attractiveness of dollar-denominated assets, potentially redirecting capital flows into other developed markets like Japan, especially when combined with a relatively stable Bank of Japan policy. This expectation contributed to a broader risk-on sentiment that benefited the Nikkei 225.

Technical Analysis and Market Resilience

From a technical perspective, the Nikkei 225 bullish trend in May and June was characterized by key breakouts and sustained momentum. The index breaking above its 7-week trading range and entering “bull market” territory are significant technical indicators. Despite minor pullbacks, such as those caused by renewed US tariff threats or sell-offs in US tech stocks, the Nikkei 225 demonstrated a consistent ability to rebound from support levels. This resilience underscores a strong underlying buying interest and an inherent bullish bias among investors. The chart patterns and moving averages in this period largely confirmed the upward trajectory, with many technical analysts identifying clear opportunities for continued gains.

Looking Ahead: Sustaining the Momentum

While the first half of 2025 has laid a strong foundation for the Nikkei 225 bullish trend, the outlook for the remainder of the year will depend on several ongoing developments. The trajectory of US-Japan trade negotiations, despite the market’s current ability to filter out some of the “noise,” remains a key variable. Any concrete resolution or significant escalation could swing market sentiment. Furthermore, the global economic landscape, particularly the inflation trajectory and central bank policies of major economies, will continue to influence investor appetite for risk.

Domestically, the continued strength of corporate earnings and the commitment of Japanese companies to shareholder-friendly policies will be paramount. The Bank of Japan’s monetary policy, while currently stable, could also present new dynamics. Calls for tax cuts and measures to stimulate domestic consumption ahead of upper house elections in July will be closely watched, as these could provide further impetus for the Japanese economy and, by extension, the stock market.

結論 

In conclusion, the Nikkei 225 bullish trend observed in May and June 2025 was a multifaceted phenomenon driven by a combination of global trade optimism (tempered by complex US-Japan tariff talks), a favorable yen exchange rate, robust corporate fundamentals, significant foreign investment inflows, and supportive global monetary policy expectations. As the market moves forward, navigating these various influences will be key to understanding whether this strong momentum can be sustained into the latter half of the year. Investors will be keenly observing how these factors evolve, hoping for continued stability and growth in the dynamic Japanese market.