AI is both the engine and the landmine! Nomura and Daiwa CEOs: The Japanese stock bull market is expected to continue until 2027, with the biggest risk being a reversal of AI faith.

Title context: AI is both the engine and the landmine! Nomura and Daiwa CEOs: The Japanese stock bull market is expected to continue until 2027, with the biggest risk being a reversal of AI faith. Text: The heads of Japan's two major securities groupsNomura Holdings, Inc. Sponsored ADR and Daiwa Securities Grouprarely spoke with one voice on the same day: the strong rally in Japanese stocks is expected to continue until 2027 or even longer, but a potential reversal in artificial intelligence (AI) investment sentiment poses the primary threat currently facing the market. "Both the current market, stock prices, and corporate earnings are strongly driven by AI-related investment," said Kentaro Okuda, CEO of Nomura Holdings, Inc. Sponsored ADR, at an event held in Tokyo on Thursday. "Once market sentiment toward AI turns and this trend reverses, it will bring significant risks." Akihiko Ogino, CEO of the smaller rival Daiwa Securities Group, expressed a similar view during the same discussion. The two heads of Japanese brokerages also specifically pointed out that recent public opposition to AI and data centers in countries such as the United States could lead to a decline in investment in this field. In multiple regions across Europe and the United States, the large-scale construction of data centers has triggered widespread controversy over electricity consumption, water usage, and community impact, with some local governments beginning to impose stricter approval conditions on data center projects. This kind of public resistance may, through policy transmission mechanisms, impose substantive constraints on the capital expenditure plans of tech giants. "The thing to be most vigilant about is the reaction of market participants," said Akihiko Ogino. "Market sentiment can reverse dramatically in an extremely short period of time, triggering sharp swings in asset prices. Such market volatility amplifies risk, and its impact will far exceed changes in the real economy itself. I think this is the biggest challenge." This warning is highly consistent with the judgments of other large institutional investors globally. Rohit Sipahimalani, Chief Investment Officer of Singapore's state-owned investment giant Temasek, said this week that a reversal in the AI trade is the biggest risk facing the market. "We don't think it's imminent, but will there be turbulence in 2027? Yes, it's possible." He pointed out that although U.S. Treasury yields have climbed sharply, AI remains a key force supporting U.S. stocks near record highs, but the strength at the index level masks weakness beneath the surfaceabout half of the constituents in the Russell 3000 index have fallen at least 20% from their June highs, highlighting how much the market's resilience depends on a handful of winners. Multiple DRIVEs of a four-year bull market Nevertheless, before AI sentiment reverses, both executives still predict that the Nikkei 225 index will eventually reach the 80,000 mark, but there are significant differences in their judgments on the path to achieving it. Akihiko Ogino expects this target to be reached this year, and further predicts that the Nikkei index will climb to 88,000 around the end of 2027. Kentaro Okuda takes a relatively cautious stance, expecting the index to be at around 75,000 by the end of the year and to break through 80,000 by the end of 2027. The Nikkei 225 closed at 69,042.11 on Thursday, meaning that even based on Okuda's conservative forecast, there is still more than 8% upside, while Ogino's target implies about 16% upside potential. The two executives' firm bullishness on Japanese stocks is built on a historic bull market that has lasted nearly four years. Currently, Japanese stocks are approaching historic highs, with their rise strongly driven by three forces: the AI investment wave, corporate governance reform, and the increased investment appeal brought by the return of inflation. The continued influx of foreign capital has become the most important funding support for this rally. According to data from Japan's Ministry of Finance, in the first half of 2026, overseas investors' net purchases of Japanese spot stocks exceeded 10 trillion yen, five times the level of the same period last year, setting a record high on a half-year basis. Corporate governance reform has provided institutional support for the revaluation of Japanese stocks. In July 2026, Japan's Financial Services Agency and the Tokyo Stock Exchange jointly released a revised version of the Corporate Governance Code after five years, requiring boards of directors to more actively manage and disclose the use of cash reserves and capital efficiency. This reform continues the governance campaign against "below-book-value stocks" promoted by the Tokyo Stock Exchange since 2023, continuously guiding Japanese companies to improve shareholder returns. At the same time, Japan's economy is undergoing its strongest wage growth cycle in decades. The average increase in the 2026 "shunto" wage negotiations reached 5.01%, exceeding the 5% target for the third consecutive year and setting a record for the first "three-peat" since 1989 to 1991. The continued rise in wages provides a fundamental basis for the Bank of Japan to exit ultra-loose monetary policy and also injects momentum into consumption-driven economic growth. The risk of an AI investment reversal warned about by Kentaro Okuda and Akihiko Ogino has as its backdrop an unprecedented wave of capital expenditure worldwide. Goldman Sachs Group, Inc. estimates that from 2026 to 2031, global AI capital spending on computing, data centers, and power will reach about $7.6 trillion, with annual investment climbing from $765 billion in 2026 to $1.64 trillion in 2031. For just five hyperscale cloud providersMicrosoft Corporation (MSFT.US), Alphabet (GOOGL.US), Amazon.com, Inc. (AMZN.US), Meta (META.US), and Oracle Corporation (ORCL.US)capital expenditure in 2026 is expected to reach about $795 billion, and in 2027 it will approach $1.08 trillion. This round of capital market prosperity has also directly translated into an earnings explosion for these two major brokerages, with both posting record profits in the previous fiscal year. Yen trend In their judgments on the yen exchange rate, the two executives also showed divergence. Akihiko Ogino expects the USD/JPY exchange rate to trade around 160 throughout the forecast range through the end of 2027. Kentaro Okuda predicts that USD/JPY will be around 156 at the end of the year and then gradually strengthen as political concerns over GEO Group Inc ease. Akihiko Ogino attributed the yen's recent recovery from excessive weakness to joint intervention, U.S. Treasury Secretary Bessent's call for the Bank of Japan to raise interest rates, and the central bank's September rate hike. He also described the rate hike as a "positive signal" reflecting economic growth. Kentaro Okuda said overseas investors remain strongly interested in Japan, and the negative impact of rate hikes so far has not been significant. He added that conflicts in the Middle East and between Russia and Ukraine may become prolonged, potentially pushing up energy prices and disrupting supply chains.