TOKYO, Dec 31 (News On Japan) - The Japanese stock market is entering a new phase as investors look ahead to 2026 following a volatile but ultimately strong year in 2025, when the Nikkei index briefly approached the 50,000-yen level.
A survey of 38 market experts conducted for a TV Tokyo program shows growing optimism tempered by rising concerns over interest rates, US policy shifts, and mounting risks tied to technology investment.
Looking back at 2025, the market surged sharply from April before flattening out from November onward. Analysts say the rally was largely driven by technology-related stocks, particularly those linked to US data centers and AI infrastructure. The weight of American tech giants such as Alphabet, Amazon, and Oracle in global indices has grown so large that their performance now has an outsized impact on Japan’s market as well.
Some experts warned that confidence in data center investment has begun to waver. Oracle, long a core player in enterprise databases, has seen rising concerns over whether its massive capital spending can be sustained. Market participants have even begun factoring in longer-term credit risks, a sign that enthusiasm for AI-related spending is no longer unconditional. As a result, many analysts believe the market has entered a phase where steady gains will be harder to maintain.
Forecasts for the Nikkei average at the end of 2026 center around the 48,000-yen level. While the first half of the year is expected to benefit from favorable conditions, including strong corporate earnings and policy support, experts caution that risks will likely emerge later in the year. Persistent US economic strength could make interest rate cuts more difficult, raising the possibility of renewed inflation pressures and market corrections.
Currency movements are also drawing attention. Despite multiple rate hikes by the Bank of Japan, the yen has remained weak, hovering in the upper 150-yen range against the dollar. Many analysts admit their forecasts of a stronger yen have repeatedly missed the mark. Structural factors, such as Japan’s shrinking role in global markets and its growing digital trade deficit, continue to weigh on the currency. Much of Japan’s current account surplus now comes from overseas investment income, which is often reinvested abroad rather than repatriated, limiting upward pressure on the yen.
Inbound tourism remains a bright spot, with visitor numbers expected to exceed 40 million in 2025. While concerns persist about a slowdown in Chinese tourism, experts note that group tours now account for less than 20 percent of arrivals, meaning any decline would likely have a limited overall impact.
Looking ahead, several major events could shape markets in 2026. One is the selection of the next chair of the US Federal Reserve. Although expectations are growing that a more dovish figure will be appointed, uncertainty remains over the timing and scale of future rate cuts. Some analysts believe that political maneuvering could even bring forward monetary easing as early as March, depending on personnel changes at the Fed.
Another major factor is the outcome of a US Supreme Court case concerning Trump-era tariffs. If the court rules against the government, companies could be entitled to refunds of previously paid tariffs, potentially triggering large-scale capital flows and currency movements. However, this would not apply to all tariffs, as automobile duties fall under a separate legal framework.
Experts also point to political developments in Japan as a possible catalyst. A snap general election could spark a short-term rally similar to the “Koizumi boom” of 2005, especially if markets interpret the outcome as supportive of corporate reform and growth-oriented policies.
On the US side, expectations remain broadly positive, but risks are rising. While corporate earnings and economic growth are still strong, concerns are growing over excessive investment in data centers. Analysts stress that while AI itself is not a bubble, investment in infrastructure may have gone too far, and weaker players could be weeded out in the coming year.
At the same time, the possibility that the Federal Reserve may be unable to cut rates as much as hoped remains a key risk. If inflation resurfaces amid continued economic strength, markets could face a sharper correction in the second half of the year.
Overall, experts agree that 2026 is likely to remain a year of opportunity, but one marked by greater volatility. While equities may continue to rise, investors are being urged to watch monetary policy, geopolitical developments, and shifts within the technology sector more closely than ever before.
