80,000? 90,000? How High Can the Nikkei Go? Wall Street Got Japan Wrong - Again

by Kenichi Ogura, Former Chief Editor of business magazine “PRESIDENT”

Wall Street got Japan wrong. Again.

In May, a Reuters poll put the median Nikkei 225 forecast at 62,800 for the end of 2026 and 69,000 for the end of 2027. On July 15, the index closed at 68,751.51.

The level Wall Street expected next year is almost here.

J.P. Morgan's revisions show how quickly the forecasts fell behind. In April, it raised its year-end target from 61,000 to 70,000. Less than three months later, that target stood only 1.8% above the market.

Even bullish forecasts could not keep pace.

Wall Street repeatedly raised its destination after the market had travelled most of the distance. Its targets followed the index uphill, several steps late.

When prices outrun their models, analysts raise earnings assumptions and publish higher targets. The new forecast looks bold until the market overtakes it again.

This does not prove that the Nikkei must fall, or that 80,000 and 90,000 are absurd. It shows that Wall Street has not established where the rally ends. It is chasing a market whose strongest support - the weak yen - is also one of its greatest risks.

The Nikkei is not near 69,000 because Japan suddenly became a high-growth economy.

AI investment, corporate reform, shareholder returns and foreign buying all matter. But the weak yen has amplified their effect.

At around 162 yen to the dollar, overseas revenue and profits become much larger when converted into yen.

For many exporters, a weaker yen raises reported earnings

$10 billion in overseas revenue translates into 1.4 trillion yen at 140 yen to the dollar, but 1.6 trillion yen at 160 yen. That is a 200 billion yen increase without another machine or car being sold.

The profit effect varies because of hedging, import costs and overseas production. But for many exporters, a weaker yen raises reported earnings. Analysts lift their forecasts, making high share prices easier to justify.

The result is genuine profit growth mixed with currency arithmetic.

The same weak yen raises the cost of imported energy, food and raw materials. Exporters gain, while households lose purchasing power and smaller domestic companies face higher costs.

The Nikkei captures the listed winners far more clearly than the losses spread across households and smaller firms.

Japan's stock market is rising partly because its currency is falling. That is what Wall Street underestimated.

The Bank of Japan raised its policy rate to 1% in June. The yen nevertheless weakened beyond 162 yen.

The yen remains a funding currency

A rate that looked high by Japanese standards remained too low to reverse the yen's weakness.

Japanese rates are still below US rates. Investors can borrow cheaply in yen and buy higher-yielding dollar assets. The yen remains a funding currency.

The Bank of Japan tightened, but not enough to convince the foreign-exchange market.

The question is whether it raises rates again later in 2026. A Reuters poll before the June decision found that economists expected 1.25% by year-end.

Higher rates can support the currency, but they also raise borrowing costs and put pressure on the government bond market. Japan's enormous public debt makes every increase more consequential.

The yen's weakness shows that markets are not convinced the Bank of Japan will narrow the interest-rate gap quickly enough.

This is the rally's central contradiction.

A weaker yen lifts exporters' reported profits. But the further it falls, the greater the pressure for intervention and higher rates. The force supporting share prices also increases the chance of a policy response that weakens that support.

Authorities spent a record 11.7 trillion yen supporting the yen between late April and early May. The currency eventually returned to the same area. Intervention can produce a violent move, but it cannot erase an interest-rate gap.

If Japanese rates rise while US policy loosens, the gap narrows. The yen strengthens, and carry trades financed with cheap yen borrowing begin to unwind.

The market has priced the earnings benefit of depreciation more enthusiastically than the risk of reversal.

The meaningful levels are now 75,000, 80,000 and 90,000

At 68,751, a target of 70,000 is no longer a destination. It is little more than a routine market move.

The meaningful levels are now 75,000, 80,000 and 90,000.

A move to 75,000 requires another 9.1%. Further earnings upgrades, continued AI investment and a weak yen could deliver it.

A move to 80,000 requires 16.4%. Investors would have to keep funnelling money into technology shares and paying high prices for future profits. It can happen, but it would not be cheap.

A move to 90,000 requires 30.9%. That would demand rapid earnings growth, continued support from a weak yen, further valuation expansion - or all three.

That is where a bull market becomes a valuation experiment.

The exchange rate leaves little room for comfort. Around 162 yen, exporters retain their advantage, but pressure for intervention and rate rises grows. A further slide towards 170 yen would intensify the political and inflationary costs. A rebound towards 145 yen would remove part of the currency support behind exporters' earnings forecasts.

There is no painless exchange rate from here.

A move from 162 yen to 145 yen would reduce the translation benefit for many internationally exposed companies. Analysts would cut forecasts, and currency-sensitive technology and manufacturing shares could fall before the wider economy weakened.

Wall Street's forecasts did not lead this market

Corporate reform, shareholder returns and AI investment would remain. But a stronger yen would reveal how much investors had paid for favourable currency conditions.

Above 80,000, the Nikkei would be pricing not only profits, but the durability of the currency regime.

At 90,000, investors would need the yen to remain weak enough to support earnings, or corporate growth strong enough to replace that support.

The consensus expected 62,800 at the end of 2026. The Nikkei passed it in early May. J.P. Morgan moved to 70,000. By mid-July, the index was almost there.

Wall Street's forecasts did not lead this market. They documented its advance after the fact.

Its first mistake was underestimating how far a weak yen could carry the Nikkei. Its next may be assuming that the yen will keep carrying it.