Nomura, Daiwa CEOs Flag Risk AI May Spoil Stock Market Rally

Two of Japan's largest securities firms, Nomura Holdings and Daiwa Securities Group, anticipate the country's stock market rally to continue well into 2027. The CEOs of these firms, Kentaro Okuda of Nomura and Akihiko Ogino of Daiwa, expressed confidence in the market's sustained growth during a Nikkei event in Tokyo. However, they caution that a shift in sentiment towards artificial intelligence (AI) could pose a significant risk to this positive trajectory.

Both CEOs project the Nikkei 225 Stock Average to reach 80,000 by the end of the year, with Okuda expecting it to surpass 80,000 by the end of 2027. Meanwhile, Ogino sets a higher target of 88,000 by the same date. Currently, the Nikkei stands at 69,042.11.

The optimism surrounding the Japanese equities market is driven by factors such as AI investment, corporate governance reforms, and a return to inflation. These elements have fueled record earnings for both Nomura and Daiwa in the past fiscal year.

Okuda projects the yen to reach about ¥156 per dollar by year-end, gradually strengthening as geopolitical concerns ease. Ogino attributed the recent recovery in the yen's value to joint interventions, calls for rate hikes from U.S. Treasury Secretary Scott Bessent, and the Bank of Japan's September rate hike. He described rising interest rates as a "positive development" reflecting economic growth.

Despite these positive expectations, both executives warn of potential risks associated with changing public sentiment towards AI. They note that recent public opposition to AI and data centers in countries like the U.S. could lead to a decline in investment in the sector. Ogino emphasized that market participants can change their views rapidly, causing sharp swings in asset prices that can amplify risks beyond those present in the real economy. He highlighted this as the biggest challenge facing the market.