Top catalysts for the Nikkei 225 Index in Q4’25

The Nikkei 225 Index, which tracks the biggest companies in Japan, retreated to the important support level at ¥45,000, down from the year-to-date high of ¥45,900. 

It remains about 45% above the lowest level in April. This article looks at the top catalysts that will drive Japanese stocks in the fourth quarter.

Bank of Japan interest rate decisions 

One of the top catalysts for the Nikkei 225 and Topix indices in the fourth quarter will be the interest rate decision.

The bank has maintained interest rates steady this year,which has helped to support the country’s stocks.

Analysts expect the central bank to deliver at least one rate hike this year as inflation remains significantly higher than the target. The most recent consumer inflation data showed that the headline Consumer Price Index slowed to 2.7% in August from Monday’s high of 4% core inflation has remained above 3%.

They hope that the bank will hike rates this year explains why Japan’s bond yields have moved upwards in the past few months, with the ten-year hovering at 1.65% up from the year-to-date low of 1.06%.

Still, the bank is cautious that hiking rates will weaken the economy. A report released on Tuesday showed that the country’s retail sales dropped by 1.1% in August after growing by 0.4% in July. Industrial production also pulled back by 1.1% during the month.

Federal Reserve interest rates

The other important catalyst for the Nikkei 225 will be the actions from the Federal Reserve  

Unlike the BoJ, the Federal Reserve has taken a divergent approach on interest rates.

The bank decided to cut interest rates by 0.25% in its meeting in September and officials signaled an openness to deliver more cuts this year.

Still, some Fed officials have continued to warn about more interest rate cuts. Beth Hammack, the head of the Cleveland Fed, has argued that the banks should not be cutting rates because inflation has remained above 2% for too long.

The Fed has pointed to the labor market, which has weakened substantially in the past few months, with the unemployment rate rising to 4.3%.

Fed actions have an impact on the Nikkei 225 Index and other global benchmarks. In most cases, the index jumps when the Fed is cutting rates or when it has embraced a dovish policy.

US tariffs court ruling 

The other notable catalyst for the Nikkei 225 Index will come from the US judiciary, which will determine whether Donald Trump’s main policy is legal.

The administration has already suffered from two court rulings that determined that his tariffs were illegal. It then appealed the verdict, and analysts expect the case to move to the Supreme Court.

The court will likely deliver a ruling on the case in Q4. A ruling that Trump’s tariffs were illegal will boost the Nikkei 225 Index because it will eliminate the substantial tariffs that the US added to Japanese companies.

Japanese companies are now paying a 15% levy for most of the products shipped into the US. However, Trump will still have some approaches to implement his tariff policies.

Corporate earnings 

The other crucial catalyst for the Nikkei 225 Index will be corporate earnings, which will start coming out in October and November.

The most recent results showed that Japanese companies had an average earnings growth of 25% in Q2. However, analysts expect this to reverse in Q3 as tariffs and cautious domestic spending hit.

Analysts expect that the average earnings growth in the current quarter will be minus 23%.

The Nikkei 225 Index will also react to other catalysts, including politics.

Precisely, the market will react to who becomes the next prime minister after Shigeru Ishiba resigns. Some of the top contenders are Sanae Takaichi, Shinjiro Koizumi, Yoshimasa Hayaki, and Takayuki Kobayashi.

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