Nomuraconnects

Sonal Varma Chief Economist, India and Asia ex-Japan Si Ying Toh Economist, Asia ex-Japan In Asia, AI has helped automate routine, entry-level tasks while increasing demand for experienced senior staff. AI-related layoffs in Asia are concentrated in financial services and lower-skilled tech roles, while over 80% of new hiring focuses on AI training and data annotation in tech.

In the US, we expect continued solid growth, elevated inflation, and the Fed to remain on hold. In the euro area, surveys point to an improving growth outlook, but US–Iran hostilities could pause that trend. Although we expect real GDP to contract in Q3, in quarter-on-quarter terms, we believe Japan’s economy will remain on a recovery path.

Food inflation is likely contained, but 2027 risks loom as buffers deplete. Philippines and India are the most exposed (high food CPI weightings), followed by Indonesia and Thailand. Fiscal and supply-side policies will serve as the first line of defense, while EM central bank responses may not necessarily be hawkish. Trade protectionism is a major risk in coming months, in our view.

Labor data to date show only a modest impact from AI. Across postings, hiring, payrolls, and wages, the impact looks muted and uneven. The limited labor market impact is consistent with past waves of technological changes. Technology is typically disruptive at the micro level, but, over time, tends to create new roles and expands employment rather than leading to persistent “technological unemployment. Policymakers remain broadly optimistic about AI’s longer-term labor-market impact.

Cross-shareholdings have plummeted from 50% of total market capitalization in 1990 to just 11% today Japan-related M&A reached JPY 51 trillion ($314 billion) in 2025, more than doubling from a year earlier The transition from relationship-based capitalism toward performance-driven governance is creating a more dynamic M&A market Japan's corporate landscape is undergoing a profound transformation, driven by a decades-old practice that is finally unravelling.

The Takaichi administration’s first growth strategy calls for over ¥370 trillion ($2.3 trillion) in public–private investment through FY2040, though details remain unclear. The strategy’s longer-term projections show that there would need to be growth close to the maximum of the assumed range to achieve fiscal responsibility. Prime Minister Sanae Takaichi intends to set up an investment framework for “a strong and prosperous Japan” in the initial budget for FY2027.

Asia stands at a critical juncture. The transition from a unipolar to a multipolar world order, China’s rise and the AI revolution have all unleashed simultaneous shocks, including supply-chain realignments, geoeconomic fragmentation, rising economic nationalism and increased volatility. For a region that has thrived under open trading systems, these shifts are challenging the growth models of both developed and emerging Asian economies alike.

Fed Chair Kevin Warsh described core PCE inflation, the Fed’s long-time preferred inflation metric, as a “rough swag” and proposed alternative inflation measures including trimmed-mean inflation. PCE trimmed-mean inflation, which removes outliers, tends to be slow in detecting a change in the inflation trend, while underlying inflation trend measures indicate the risk of a new upward trend emerging recently.

Assuming tensions in the Middle East ease, we envision a sustained, modest recovery for the Japanese economy. In addition to our main scenario, we consider five ways the Middle East situation poses a risk to Japan’s economy. A shock to domestic demand — though improbable — would make it hard for the BOJ to hike rates.

The Middle East conflict has accelerated Asia's energy security drive, focusing on six pillars: diversification of the energy mix and supply sources, strategic reserves, energy efficiency, boosting domestic production and regional cooperation. We introduce Nomura’s Asia Energy Security Index (NAESI), which measures the energy security preparedness of different Asian economies.