Nikkei 225: A Close Above 65,000 Is the Green Light Bulls Need

by Kenichi Ogura - Former Chief Editor of PRESIDENT (Japan’s No.1 business magazine)

Long-term investors can begin buying before then. A lasting move above 65,000, supported by foreign buying and firm chip earnings, would give them a stronger reason to add.

The Nikkei 225 (the Nikkei) closed at 63,754.90 on August 3, 2026. It stood 11.9% below its record closing high of 72,366.34 on June 25. The index had fallen as low as 60,448.90 on July 29 before recovering.

That fall has already opened the door for long-term buyers. An investor who expects Japanese companies to raise profits and shareholder returns over several years does not need to wait for a perfect signal. Buying in stages now is a reasonable choice.

The 65,000 level answers a different question: when should that investor add more?

A brief move above 65,000 would not settle the issue. The Nikkei must close above that level and stay there. Foreign investors must return as steady buyers. The large AI and chip stocks that led the fall must stop setting new lows. When those three things happen together, the rebound becomes much more convincing.

Why the Fall Was So Sharp

The July fall did not show that every part of Japanese business had suddenly weakened. A narrow group of technology shares caused much of the damage. Kioxia Holdings Corporation <285A>, ADVANTEST CORPORATION <6857>, Tokyo Electron Limited <8035>, SoftBank Group Corp. <9984> and IBIDEN CO., LTD. <4062> cut about 1,800 points from the Nikkei during the sharp mid-July sell-off.

These stocks had risen very fast. Some investors had bought them with borrowed money. Once prices turned down, those investors faced calls to add cash or sell. The forced selling pushed prices down again.

The Nikkei made the move look even larger because of the way the index is built. It gives more weight to stocks with high share prices. It does not simply give the largest weight to the company with the largest market value. A sharp fall in a few high-priced shares can therefore pull the Nikkei down much faster than the wider Japanese market.

TOPIX offers a useful check. It gives companies weight based on the market value of the shares that investors can freely trade. When the Nikkei falls much faster than TOPIX, a small number of expensive stocks may be driving the headline.

The chip sell-off was severe, but it did not prove that global AI demand had collapsed. Taiwan Semiconductor Manufacturing Company Limited <NYSE:TSM> reported second-quarter revenue of $40.2 billion. It forecast third-quarter revenue of $44.6 billion to $45.8 billion. ASML Holding N.V. <Nasdaq:ASML> reported second-quarter sales of 9.3 billion euros and raised its 2026 sales forecast to 43 billion euros to 45 billion euros.

Those figures show that two of the world's most important chip suppliers still saw strong demand in July. They do not guarantee that demand will remain strong. TSMC's third-quarter figure and ASML's full-year figure are company forecasts, not completed results.

The next earnings reports will decide whether the Japanese sell-off was mainly a drop from prices that had run too far, or the start of a real slowdown.

Continued spending on data centers, memory and chip-making equipment will support the rebound. Cuts in that spending will end it. Firm profit forecasts from Kioxia, Advantest and Tokyo Electron will show that the business remains sound. Lower forecasts will point to a deeper problem.

Sales growth alone will not settle the matter. Costs, new factories and research spending can rise just as fast. The companies must turn demand into profit and cash. A strong business can still be a bad investment when the share price already assumes years of perfect growth.

What 65,000 Would Prove

Price action now gives investors a simple test.

The market entered August after six straight weekly declines. That makes the first rebound easy to overread. After a long fall, even a weak market can jump for a day or two because sellers have already acted. The stronger signal is not the size of one rise. It is the market's ability to keep the gain.

Some chart measures had already moved out of the "heavily sold" zone by the end of July. That showed that panic was easing. Other measures still pointed down. Investors do not need to master every chart term. The message is plain: the market had stopped falling at full speed, but it had not yet proved that a new rise had begun.

The Nikkei first needs to hold above 65,000. The next barrier lies near 66,880, around its average level over the previous 25 trading days in early August. A return above that line would show that the recent direction has changed.

There is no need to wait for a return to the record high. Several firm closes above 65,000 would be enough to show that buyers can defend a level that sellers controlled during the fall.

Global money would give that move real weight.

Overseas investors bought a net 692.1 billion yen of Japanese cash shares in January 2026. The average dollar-yen rate that month was 156.79 yen to the dollar, which puts the buying at about $4.4 billion.

The direction later reversed. From June 22 to June 26, overseas investors sold a net 1.2378 trillion yen of cash shares. They also sold index futures, contracts that allow investors to trade the direction of the market without buying every company in it.

One week of buying would mean little. Two or three weeks of foreign buying while the Nikkei stayed above 65,000 would show that global funds were putting fresh money into Japan. That would be stronger than a quick rise caused by traders buying back shares after betting on another fall.

Global investors do not control the whole market. Japanese companies, pension funds and individuals also buy shares. Yet overseas funds can move large amounts quickly, especially through index futures. Their return would turn a short rebound into a broader recovery.

Rates and the Yen Still Matter

The Bank of Japan raised its short-term policy rate to around 1.0% in June. It kept that rate in place at its July 30-31 meeting. Higher rates raise borrowing costs and reduce the value investors place on profits that will arrive far in the future. That pressure falls hardest on expensive growth stocks.

Higher Japanese rates can also strengthen the yen. A stronger yen cuts the yen value of overseas profits when exporters bring those earnings home. A weaker yen lifts reported profits for exporters, but it also raises the cost of imported fuel and materials.

Japan and the United States jointly bought yen in late July after the currency fell to its weakest level in about 40 years. The action pushed the yen higher, but intervention does not decide the currency's long-term direction. Interest rates, inflation, government spending and borrowing will matter more after the first market reaction fades.

This point should not stop long-term investors from buying. It sets a limit on what a move above 65,000 can prove. The signal would show that buyers have returned. It would not remove every question about Japan's currency or public finances.

The downside line is just as clear.

The Nikkei came close to 60,000 on July 29. A clear break below that level would damage the case that the market has formed a bottom. The next support area in the supplied technical analysis is 58,000 to 59,000.

A fall below 60,000 would be more serious if chip companies also cut profit forecasts or foreign investors kept selling. A fall driven by fear can reverse quickly. A fall joined by weaker profits is harder to repair.

Long-term investors can begin buying in stages now. They do not need to wait until 65,000 before buying anything. A lasting move above 65,000, backed by foreign buying and firm chip earnings, is the signal to add.

The choice is not simply "buy now or wait." It is how much to buy now and what evidence would justify buying more.

For now, 60,000 is the warning line. A firm hold above 65,000 would show that buyers have taken control again.

*The views expressed in this article are those of the author and do not constitute investment advice.