Chart of the week: Japan Nikkei 225 potential of bullish breakout.

The Japanese stock market has been slowly making its way back into the bullish limelight, but without much fanfare, as the focus over the past three months has been centred on the US and European stock markets due to optimism surrounding the US-centric Artificial Intelligence (AI) theme and euro strength.

Interestingly, the Nikkei 225, a key benchmark for the Japanese stock market, has been the second-best-performing major global stock index from 7 April 2025, following the announcement of the US “Liberation Day” tariffs, up until Friday, 8 August.

The Nikkei 225 recorded a gain of 34.3%, ranked second behind South Korea’s KOSPI (37.9%), surpassing the S&P 500 (26.2%) and the European Stoxx 50 (14.8%) (see Fig. 1)

Let’s now decipher the price action movement of the Japan 225 CFD Index (a proxy of the Nikkei 225) from a technical analysis perspective.

The Japan 225 CFD Index has staged a major bullish breakout on 25 June 2025 from a former major descending trendline resistance that capped prior up moves since the 10 July 2024 all-time high.

It has now evolved into a medium-term uptrend phase as its price actions have oscillated within the ascending channel in place since the 23 May 2025 low of 36,445.

The 4-hour RSI momentum indicator has entered overbought territory (above 70) but shows no signs of bearish divergence. This suggests that the Japan 225 CFD Index may experience only a minor pullback within its ongoing multi-week bullish impulsive up-move sequence, rather than a sharp bearish reversal (see Fig. 2).

At the time of writing, its price stands at 42,462, just a whisker below the all-time high of 42,513 set on 10 July 2024.

Bullish bias with 41,275 as the key medium-term pivotal support for the next medium-term resistances to come in 43,230 and 40,060 next.

On the other hand, a break below 41,275 negates the bullish tone to expose the next medium-term support at 40,645 (also the 20-day moving average).