By Kevin Buckland
TOKYO, May 27 (Reuters) - AI exuberance and robust earnings will continue to power Japan's Nikkei to record highs, even as its blistering rally makes it hard for forecasters to keep up, analysts said in a Reuters poll.
The median forecast in a Reuters poll sees the Japanese benchmark index scaling an all-time peak at 69,000 by the end of next year, after it set a record top of 65,408.87 on Monday. It ended Tuesday trading at 64,996.09.
However, the median forecast for end-2026 is 62,800
after the Nikkei surged nearly 10% since May 20's low of 59,292.25 as the market turned more optimistic on a near-term end to the Iran war, catapulting tech shares to double-digit gains. AI-focused startup investor SoftBank Group soared more than 60% over the period.
Nomura Securities' head of macro research Yunosuke Ikeda is bullish on stocks but the pace of the Nikkei's climb has outpaced his forecasts for it to be 63,000 in December and 65,000 a year later.
The rally "is just too sharp to catch up with" as a forecaster, he said.
Seven of 12 respondents to an additional question said their views around AI driving stock market performance had remained about the same compared to three months ago. The remaining five said they were more optimistic.
At the same time, Nomura's Ikeda said further AI optimism isn't a precondition for stock gains.
"Market sentiment about AI sustainability is choppy, which is why the Nikkei has been volatile," he said. "But earnings growth is stable even without AI, so the uptrend for stocks is likely to continue."
To be sure, the AI boom is powering share gauges to ever-higher records across the globe. But Japanese equities have benefited from additional tailwinds, including shareholder-centred governance reforms by the Tokyo Stock Exchange and growth-focused policies under Prime Minister Sanae Takaichi.
The Nikkei has soared nearly 70% in the past two years, outpacing gains for benchmark indexes in the United States, China, and Europe.
Among 16 forecasts for the end of the year only four were below 60,000. Among the bears, IG Markets analyst Tony Sycamore predicted a slide to 55,000 by end-December.
"The Nikkei likely topped out this month" opening the way for "a 20% pullback before year-end," he said.
Respondents were split on the chances of a correction - generally defined as a 10% drop or more - in the next three months with six saying it was "likely" or "highly likely" versus five who said it was "unlikely".
Sony Financial's chief economist Hiroshi Watanabe, who sees the Nikkei reaching 70,000 by end-2027, was in the latter camp but added drops of 5% to 10% "are likely to occur frequently".
Although the Iran war has weighed on stock prices amid worries about oil-led inflation and higher interest rates "that is unlikely to halt the development of AI," Watanabe said.
And on the contrary, "accelerating inflation will actually mean an expansion in both the overall economy and corporate earnings as well," buoying equities in the medium term, he said.
(Other stories from the Reuters Q2 global stock markets poll package)
(Reporting by Kevin Buckland; Additional reporting by Rocky Swift and Junko Fujita; Polling by Sarupya Ganguly; Editing by Chizu Nomiyama )
