Nikkei Seen Rising Further in 2026 after Topping 50,000 on AI Boom

Tokyo, Dec. 30 (Jiji Press)–Japan’s benchmark Nikkei 225 stock average is expected to continue rising in 2026 after topping 50,000 in 2025 thanks partly to the popularity of stocks of firms related to artificial intelligence. Some brokers expect the Nikkei to exceed 60,000, but caution is rising over huge investments by AI-related companies. Meanwhile, many financial market players project the yen will be on a weak note and Japanese long-term interest rates will remain high. After moving above 39,000 in early 2025, the Nikkei average plummeted to near 30,000 in April, when the administration of U.S. President Donald Trump announced its high tariff policy. Investor sentiment improved later thanks to progress in Japan-U.S. tariff negotiations. Stocks of semiconductor-related firms surged amid expectations for the growth of the AI industry, driving up the overall market. Also underpinning the market were listed companies’ buybacks of own shares and speculation that the U.S. Federal Reserve would lower interest rates. The Nikkei exceeded 50,000 for the first time in October on the back of hopes for the expansionary fiscal policy of the administration of Japanese Prime Minister Sanae Takaichi, who took office that month. On Tuesday, the final market day in 2025, the Nikkei closed at 50,339.48, marking its highest year-end finish on record. The index gained 10,444.94 points, or 26.18 pct, in 2025. On the foreign exchange market, the dollar, which stood above 157 yen in early 2025, plunged below 139.90 yen in April due to a slew of yen buying sparked by anxiety over the U.S. tariff policy and speculation about an interest rate hike by the Bank of Japan. The Japanese currency was sold back later, partly reflecting concerns over Japan’s fiscal condition traced to the Takaichi government’s aggressive fiscal policy, helping the dollar rally close to 157.90 yen in November. The greenback stood at 155.97-98 yen at 5 p.m. Tuesday. The yield on the newest issue of 10-year Japanese government bonds, regarded as Japan’s benchmark long-term interest rate, kept rising as a trend in 2025 because of expectations for an interest rate hike by the BOJ and concerns over an increase in JGB issuance attributable to the Takaichi government’s expansionary policy. The benchmark yield rose to as high as 2.1 pct in December, up from levels above 1.1 pct in early 2025, hitting the highest level in 26 years and 10 months. The yield stood at 2.060 pct late Tuesday. Many market players expect a bull run for the Nikkei stock average in 2026. “The Nikkei may rise to top 60,000 on the assumption of monetary easing by the Fed and the Takaichi administration’s economic policy,” an official of a bank-affiliated securities firm said. Meanwhile, an official of an investment advisory company warned, “The Nikkei may slip below 40,000” if AI-related firms fail to generate profits matching their huge investments. On the currency market, expectations that the yen will remain weak are slightly dominant. “The interest rate gap between Japan and the United States will not narrow as much as the market expects,” due to factors including the Takaichi government’s hope for monetary easing by the BOJ, an expected slowdown in Japan’s inflation and the firmness of the U.S. economy, an official of an asset management company suggested. JGBs are expected to remain vulnerable to selling in 2026 as concerns linger over the Takaichi government’s fiscal policy although the pace of the BOJ’s possible further interest rate hikes is forecast to be slow. Many market players expect the benchmark 10-year JGB yield will remain high above 2 pct. The BOJ raised its target for the unsecured overnight call rate, Japan’s benchmark short-term interbank lending rate, twice in 2025–from around 0.25 pct to around 0.5 pct in January and to around 0.75 pct in December. END [Copyright The Jiji Press, Ltd.]