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Japanese stocks rose on Wednesday, dropping heavily at the open before rebounding to a gain as investors absorbed the record-breaking volatility of recent sessions and the broader turbulence in global equities.
In what traders said was a measure of the volatility the Japanese market should expect in coming days, the broad Topix index fell by about 2 per cent in the first minutes of trading. Then, led by shares in the large banking groups Sumitomo Mitsui, MUFG and Mizuho, the index rapidly reversed course to trade 2.2 per cent higher.
Trading in the narrower Nikkei 225, which leans heavily to technology and retail, followed a similar path, plunging first before surging 2.2 per cent higher on the day.
“This is the market attempting to make some sense of what has happened over the last two days. And the truth is that it still doesn’t make a lot of sense,” said one Tokyo-based equity broker.
Markets in the rest of Asia followed suit. Korea’s Kospi index rose 1 per cent after an initial fall. Taiwan’s benchmark index was up 1 per cent in early trading. Australia’s S&P ASX 300 was flat after early losses.
Japanese stocks have broken a series of records — their combined 20 per cent fall over the three sessions from last Thursday to Monday this week was the heaviest ever, wiping the equivalent of $1.1tn off the value of one of the world’s biggest markets. But on Tuesday, the Topix and the Nikkei surged back by almost 10 per cent in their steepest rally in almost 16 years.
The two main triggers for the volatility in the Japanese market have been last week’s surprise Bank of Japan rate rise and growing fears of a US recession. “The biggest concern among market participants is whether pessimism over the US economic outlook has gone too far . . . the markets will remain highly sensitive to US inflation and job statistics for the foreseeable future,” said Sho Nakazawa, Morgan Stanley MUFG equity strategist.
The BoJ rate increase added further propellant to the yen, which has risen roughly 10 per cent since hitting a multi-decade low in July. The sharpness of that rise has also triggered a global unwind of the yen carry trade, which is believed to have fuelled speculative investment in assets around the world, including US-listed tech names.
“The Nikkei has essentially gone back to where it started in 2024, prior to the market rise which was driven by a combination of US monetary easing prospects and ‘higher for longer’ US interest rates,” said Naoki Kamiyama, chief strategist at Nikko AM.
“We need to keep in mind that the downturn in Japanese equities was seen to be led in part by macro trend-following index players . . . The downturn they induced could eventually pave the way for others, notably retail investors, to tiptoe into the market once volatility shows signs of settling down.”
Additional reporting by William Sandlund
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