The market is expected to see the Nikkei Average renew its all-time high, led by AI-related stocks. Against a backdrop of improving corporate earnings, an outlook has emerged for the index to target levels above ¥73,000 by year-end.
Led by AI semiconductor-related stocks, Japan’s equity market saw the Nikkei Average reach an all-time high of ¥72,831 at the end of June. Since then, however, gains have remained limited amid concerns about worsening supply-demand conditions for U.S. tech stocks and rising interest rates in Japan and the United States. In late August, expectations for rate hikes by the Federal Reserve strengthened, and the Nikkei entered another phase of decline. This prompted views that concerns across the market about unfunded fiscal expansion, including consumption-tax cuts without identified funding sources, had driven up long-term interest rates.
Nevertheless, market participants remained firmly of the view that strong earnings at Japanese companies would support a rebound in the second half. A compilation of estimates indicated that net profit for the fiscal year ending March 2027 was expected to rise 14% from the previous fiscal year, reaching a record level for the sixth consecutive year. Hiroki Takashi (広木隆) of Monex Securities explained that profit margins would improve as deflation recedes and inflation becomes entrenched. Views were also expressed that a structure in which rising interest rates and higher stock prices coexist had become established.
Market participants believe that once the market has priced in strong interim earnings in November and the results of the U.S. midterm elections, the Nikkei Average will move toward a new high of ¥73,000 by year-end.