Japan's Market Is Booming... But It Can Still Keep Rising

Most U.S. investors are overlooking a major trend... Japan's stealth bull market.

Japanese stocks have been on a tear in recent months. The benchmark Nikkei 225 Index is up roughly 40% in 2026. And it's up about 75% over the past year.

That makes Japan one of the hottest markets in the world right now. But thanks to all the other exciting investment stories out there, few are paying attention to it.

Don't make that mistake... because this market just reached a rare bullish setup. And according to history, that means the gains can continue.

This Market Has Soared, Thanks to AI

So why are Japanese stocks soaring?

For the same reason anything is soaring in the markets lately... because of AI.

The Nikkei 225 is quickly becoming another way to bet on the AI build-out. About 40% of the index is in semiconductors or technology hardware. That includes both of its largest holdings, which have each nearly tripled over the past year.

Japanese stocks are in one of the most powerful bull markets in their history. And as we mentioned, they just hit a rare setup...

Specifically, we're comparing the index with its long-term trend line, the 200-day moving average. When an asset rises above that level, it's an easy way to see it's in an uptrend.

Over the past couple of weeks, Japan's benchmark index has soared far above its long-term trend line. Take a look...

The Nikkei recently rose 35% above its trend line. This tells us the market is soaring... But a difference this large can also mean the market is stretched to an alarming degree.

I say "alarming" because, normally, this kind of stretch would be cause for concern. Nothing grows to the sky. When an uptrend is this extreme, it often tells us a slowdown is likely.

That's not the case for Japan, though. To see it, I looked at every time the Nikkei has soared 25% or more above its trend line since 1970.

That's a rare situation. It has happened only nine other times in more than 50 years. But after these setups, Japanese stocks tend to keep rising. Take a look...

Japanese stocks famously had one of the most incredible booms ever in the 1980s... then went three decades without making a new high. But even including those "lost decades," the market has still delivered 6.6% annual returns since 1970.

You can do better if you buy when the market is far above its trend line, though. Similar setups have led to gains of 6% in three months, 10.9% in six months, and 15.2% over a year.

That's healthy outperformance. Plus, this market was higher a year later 88% of the time. So the odds of success are good.

Of course, most folks would probably look at the Nikkei and assume they've missed the rally... Or they might assume the trend is too strong and due for a reversal.

History shows that would be a mistake.

This boom is likely to continue. So if you're interested in Japanese stocks, you haven't missed the opportunity yet.

Good investing,

Brett Eversole