While U.S. CPI inflation is slowing, Japan's market is maintaining a record-high TOPIX and a Nikkei Stock Average near its highs. Competition for capital driven by AI investment is increasing the risk of higher interest rates, warranting close attention to future market trends.
According to a report by a Nikkei-affiliated media outlet, the Tokyo market has seen the TOPIX reach a record high, while the Nikkei Stock Average remains near its highs. As for the external environment, U.S. CPI inflation slowed to 3.4% year on year in July, and core inflation has also moderated, reportedly reducing concerns about a renewed rise in inflation driven by higher crude oil prices. At the same time, an analysis indicates that China has reduced its crude oil imports, pointing to China's influence as a new “OPEC-like force.” The crude oil market nonetheless continues to warrant close attention.
While signs of weakness are emerging in U.S. personal consumption, capital investment centered on artificial intelligence (AI) and data centers continues to grow at an annualized rate of nearly 10%. With slowing consumption coexisting with robust investment, the view is that the overall economy will remain in a “Goldilocks” phase, neither too hot nor too cold. The Federal Reserve is considered likely to maintain its current policy stance, creating an environment conducive to rising equity markets.
Japanese corporate earnings remain solid. Net income at Prime Market-listed companies is expected to rise 14% year on year for the fiscal year ending March 2027, reaching a record high. As of the first quarter, approximately 20% of companies had raised their full-year net income forecasts, and the net profit margin is expected to rise to 7.2%. Investment related to AI and semiconductors, along with the weaker yen, is providing support, while the end of deflation and a favorable inflationary environment are making it easier for companies to raise prices.
The main risk cited is rising interest rates. Japan's long-term interest rate has reached the 2.9% range for the first time in 30 years, while the U.S. 30-year Treasury yield has also risen to a high level. In addition to the situation in the Middle East and fiscal pressures, competition for capital resulting from massive AI-related investment is cited as a factor pushing interest rates higher. Comments by the founder of Monex Securities and examples such as NVIDIA suggest that tightening supply and demand for funds is increasing overall market risk, while some observers point to the possibility that Japanese equities could gain recognition as a “safe-haven asset” over the long term.