Japan's two major brokerage firms expect the domestic stock market rally to continue through 2027, but a reversal in AI investment sentiment is the primary potential threat.

Kentaro Okuda, CEO of Nomura Holdings, said at a Nikkei event in Tokyo on Thursday: "Markets, stock prices, and corporate earnings are currently being strongly driven by AI investment. If market sentiment toward AI shifts and the trend reverses, it will pose a significant risk."

Akira Ogino, CEO of the relatively smaller competitor Daiwa Securities Group, expressed a similar view at the same forum.

Both executives predict the Nikkei 225 index will reach 80,000 points, but their projected paths differ: Ogino believes the target can be achieved this year, while Okuda judges the index will be around 75,000 points by year-end and break through 80,000 by the end of 2027.

The index closed at 69,042.11 points on Thursday.

These remarks reflect both executives' confidence in Japan's nearly four-year bull market. Benefiting from AI investment, corporate governance reform, and the return of inflation, Japanese stock indices are approaching historical highs.

The stock market boom has also boosted profits at both brokerages, with both achieving record profits in the previous fiscal year.

Ogino expects the Nikkei index to potentially reach 88,000 points by the end of 2027, with the yen exchange rate remaining around 160 yen per dollar during the same period.

Okuda predicts the yen will be around 156 per dollar by year-end, gradually strengthening afterward as geopolitical risks ease.

Ogino believes the yen's recent recovery from extreme weakness was supported by joint currency intervention, U.S. Treasury Secretary Scott Bessent's call for the Bank of Japan to raise interest rates, and the BOJ's September rate hike.

He called the rate hike a "positive development" reflecting economic growth.

Okuda said overseas investors' interest in the Japanese market remains strong, and the negative impact of rate hikes is not yet significant.

He added that conflicts in the Middle East and Ukraine could persist long-term, posing risks of driving up energy prices and disrupting supply chains.

Both executives mentioned that recent public resistance to AI and data center construction in countries such as the United States could lead to a contraction in investment in this sector.

Ogino said: "The biggest hidden danger lies in the reaction of market participants. Their views can shift dramatically in a very short period of time, triggering sharp fluctuations in asset prices. Such market conditions amplify risk shocks, and their impact can far exceed changes in the real economy itself. I believe this is the greatest challenge."