Japanese stocks experienced a significant resurgence, climbing over 10% after plunging into bear market territory during the previous day’s trading. This rebound marked the most substantial increase since October 2008, driven by key technical levels and a weakened yen.
The Nikkei 225 Stock Average and the Topix index led the recovery, buoyed by gains in technology companies, automakers, and banks. Exporters benefited from the yen’s 1% decline against the dollar, while banks, which had plummeted 17% on Monday, surged by 10%. Concurrently, yields on 10-year government bonds rose by 15 basis points. Notably, all 33 of the Topix industry sectors saw gains.
Earlier, volatile market conditions triggered a circuit breaker for Nikkei futures, with implied volatility reaching its highest point since 2008. The market’s steep 12% decline on Monday was part of a broader retreat from risk, influenced by a stronger yen, tighter monetary policy, and concerns about the US economic outlook.
“Panic selling may have subsided,” commented Hideyuki Ishiguro, chief strategist at Nomura Asset Management Co. “However, today’s price movements are likely to resemble a roller coaster due to growing anxiety in the global market.”
Technical indicators suggested a potential rebound. The Toraku ratio, which monitors the proportion of rising and falling stocks over the past 25 days, hit its lowest point since October 2023, approaching the critical level of 70 that traders often view as a turnaround signal.
“We’re witnessing a healthy correction following an unhealthy selloff, rather than a full-fledged risk-on rally,” said Matt Simpson, senior market strategist at City Index Inc. “This correction was spurred by investors rushing for a limited exit.”
Despite the rebound, Japanese stocks are expected to remain in bear market territory in the near term. The recent three-day decline had pushed equity gauges down more than 20% from their July peak.
“The significant drop in Japanese stocks compared to Europe and the US highlights that the recent correction was excessive,” noted Tomo Kinoshita, global market strategist at Invesco Asset Management Japan. “Nevertheless, this doesn’t imply the end of the market correction. Weak economic indicators from the US could still trigger further selloffs globally, including in Asia.”
