Nikkei 225: Rallied above 48,000, key levels to watch next as new Japanese PM ignites bulls

[Ben Graham]

Key takeaways

• Nikkei 225 hits new record high, rising 6.5% since 23 September 2025 amid optimism over Japan’s incoming Prime Minister, Sanae Takaichi.
• Expansionary fiscal policy expected, with higher government spending and increased JGB issuance to boost wages and corporate profits.
• Steepening JGB yield curves continue to correlate positively with the Nikkei 225’s bullish momentum.
• Medium-term bullish bias remains intact, with key support at 45,930 and potential targets between 50,090 and 51,220.

This is a follow-up analysis and timely update of our prior report, “Nikkei 225: Bullish reversal above 45,000, no negative impact from BoJ’s ETF unwind”, published on 23 September 2025.

Price actions of the Japan 225 CFD Index (a proxy of the Nikkei 225 futures) have shaped the expected bullish move. All in all, it rallied by 6.5% to hit a fresh intraday all-time high of 48,668 on Monday, 6 October 2025’s US session from 23 September 2025.

The bullish tone has been reinforced by the weekend election of fiscal and monetary dove Sanae Takaichi as the leader of the LDP ruling party in Japan, and she is likely to become Japan's new prime minister.

Let’s now focus on one key macro factor that can further boost the ongoing major and medium-term uptrend phases of the Nikkei 225.

Further steepening of the JGB yield curve

Fig. 1: JGGs yield curve with Nikkei 225 major trends as of 7 October 2025 (Source: TradingView)

The incoming new Japanese premier, Takaichi, a protegée of the late former Prime Minister Shinzo Abe, is considered a pro-fiscal stimulus conservative who is likely to embark on an expansionary fiscal policy to increase Japanese workers’ wages and corporate profits.

Aggressive fiscal expansion is going to be financed by higher Japanese Government Bonds (JGB) issuance, especially via the long-dated JGBs such as the 30-year tenure.

The major bullish breakout (steepening conditions) of the JGB yield curves (both 10-year and 30-year against the 2-year) since June 2022 has a direct correlation with the movements of the Nikkei 225 (see Fig. 1).

The major uptrend phases of the JGB yield curves' steepening remain intact so far, and since Friday, 3 October 2025, the 30-year/2-year JGB yield curve has steepened further by 16 basis points (bps) to 2.38% on Tuesday, 7 October 2025. In addition, the 10-year/2-year JGB yield curve steepened by a lower magnitude of 8 bps to 0.77%.

The continuation of a further steepening of the JGB yield curves is likely to trigger another round of a positive feedback loop in the Nikkei 225.

We shall now turn our attention to the medium-term (1 to 3 weeks) trajectory, key elements, and key levels to watch on the Japan 225 CFD Index from a technical analysis perspective.

Fig. 2: Japan 225 CFD Index medium-term trend as of 7 Oct 2025 (Source: TradingView)

Preferred trend bias (1-3 weeks)

Bullish bias with risk of a minor corrective pull-back to cover Monday, 6 October 2025’s gapped up for the Japan 225 CFD Index.

Medium-term pivotal support at 45,930 for the next potential bullish impulsive up move sequence to materialize for the next medium-term resistances to come in at 50,090/50,220 and 51,030/51,220 (Fibonacci extension clusters) (see Fig. 2).

Key elements

• The price actions of the Japan 225 CFD Index have continued to oscillate within a medium-term ascending channel since the April 2025 low. The upper boundary of the medium-term ascending channel is projected to act as a resistance zone at 50,090/51,220.
• The 45,930 key medium-term pivotal support also confluences closely with the rising 20-day moving average.
• The 4-hour RSI momentum indicator of the Japan CFD Index has reached an extreme overbought level of 87.50 on Monday, 6 October 2025. It's highest overbought level in four years since 6 September 2021. These observations highlight an increased risk of an imminent minor corrective pull-back sequence in the price actions of the Japan 225 CFD Index.

Alternative trend bias (1 to 3 weeks)

A break below the 45,930 key medium-term support for the Japan 225 CFD Index put the bulls on the backseat for a deeper corrective pull-back sequence to unfold to expose the next medium-term supports at 44,485 and 43,210 (also the 50-day moving average).

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