Strong earnings expectations make 75,000 Nikkei forecast dominant by end-2026

2026-08-17

Expectations are rising for gains in Japan's stock market. Among financial institutions, a view is spreading that the Nikkei Average could reach around 75,000 by the end of 2026. Following April-June earnings results, hopes are mounting for stronger profits at Japanese companies, and a scenario in which the benchmark breaks its June record is gaining the upper hand.

Outlook revisions

When asked for their Nikkei forecasts, 10 securities firms and banks mostly put the year-end 2026 projection at around 75,000. Citigroup Securities had the highest forecast at 90,000, followed by Daiwa Securities at 80,000. The lowest was Okasan Securities at 64,600.

Since June, firms have been successively raising their year-end forecasts. In mid-August, when most April-June 2026 earnings reports had been released, Nomura Securities also revised its outlook upward to 70,000 from 68,000.

Tomoya Kitaoka, chief equity strategist at Nomura Securities, said the April-June period, which saw a succession of strong results, was a positive surprise. He said that if strength is maintained in the next half-year period from April to September, it would not be surprising for the market to test levels above 70,000.

Record high in sight

The Nikkei Average has strengthened its upward trend since the start of the year, led by artificial intelligence and semiconductor-related shares such as Kioxia Holdings. On June 25, it hit an all-time high of 72,366, but afterward turned more corrective as concern grew over overheating in global AI-related investment.

Although it fell to just above 60,000 at the end of July, the market has recovered as earnings season began, drawing support from improved results at companies. It has now climbed back into the upper 68,000 range, bringing 70,000 back into view. Masatsugu Akutsu, chief Japan equity strategist at BofA Securities, said the summer storm had passed and that buying would likely spread to lagging domestic-demand stocks.

Market participants are increasingly convinced that profit levels at Japanese companies will rise further. According to QUICK-FactSet, 12-month forward earnings per share forecasts for companies in the Tokyo Stock Price Index have risen about 9% from the end of March.

The price-to-earnings ratio, a standard measure for stock investment, is calculated by dividing share prices by EPS. If EPS in the denominator rises going forward, the forward P/E is seen as declining, strengthening the perception that stocks are inexpensive. Some see that as a buying factor ahead.

Fears over AI investment ease

At the same time, excessive caution over AI investment is easing. Ryota Sakaue, an equity strategist at Citigroup Securities who projected the Nikkei at 90,000, cited the still-strong appetite for investment among hyperscalers, or large cloud service providers.

In the U.S., April-June earnings reports continued to come out from July onward. Microsoft and others indicated that, alongside solid current results, they intend to keep making large-scale investments in data centers and related areas.

As market catalysts for the rest of the year, monetary policy in Japan and the U.S. is also in focus alongside AI. For the Bank of Japan, a rate hike as early as September is being priced in by the market. If yen weakness is corrected and helps curb inflation, a recovery in consumption could create room for growth at retailers and food-related companies. Expectations also remain firm for the content industry, which Sanae Takaichi's administration emphasizes in its growth strategy.

Still, uncertainties remain. While some expect conditions in the Middle East to normalize, the outlook remains unclear. In the U.S., midterm elections are due in November, and the ruling Republican Party is also said to be struggling. Depending on the result, concerns have not disappeared that President Donald Trump's administration could lose momentum.

Mitsubishi UFJ Morgan Stanley Securities set its year-end Nikkei forecast at 68,000. Kohei Onishi, senior investment strategist at the firm, said that while there is a possibility of temporarily approaching the record high, uncertainties in political and economic areas in Japan and the U.S. cannot be ignored. Even as the tailwind from improving earnings grows stronger, the market remains in a phase where risk factors also need close attention.

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