Nikkei 225 Outlook: AI Wobbles Bring Key Support Zone Into View

By David Scutt, October 20, 2026

Overview

The Nikkei 225 index has experienced a significant decline since June, primarily influenced by fluctuations in AI-related stocks. Despite this downturn, the broader Japanese equity market remains resilient, suggesting that the recent weakness in the Nikkei may not indicate widespread issues within Japanese equities.

AI Concentration Takes Its Toll

The Nikkei's performance is heavily influenced by a few key companies, particularly those linked to the AI sector. At its peak in June, four companies—Advantest, Tokyo Electron, SoftBank Group, and Fast Retailing—accounted for nearly 40% of the index's weight. Recent declines have reduced this concentration to about 35%, highlighting the index's vulnerability to movements in these AI-centric stocks.

Corporate Profits Hold Up

Despite the Nikkei's struggles, corporate earnings expectations remain strong. According to LSEG consensus estimates, a majority of Nikkei constituents are projected to see earnings growth in the current fiscal year. The Bank of Japan's September Tankan survey also indicates a significant upgrade in profit expectations among large manufacturers, contrasting with the less optimistic outlook for non-manufacturers.

Major Support Test Approaches

The recent decline has brought the Nikkei close to critical support levels, including long-term uptrend support and horizontal support at 62,714. The 200-day moving average is also positioned just above 62,000, creating a crucial support zone for assessing the index's medium to long-term risks. If the index breaks below this support zone, it could signal a more substantial decline.

Conclusion

As major US technology earnings are set to be released, the performance of the Nikkei, which is closely tied to AI investments, will be closely monitored. The upcoming results from key players in the AI sector will serve as a critical test for the index's resilience and potential direction.