Tokyo — Japanese shares made a significant recovery on Tuesday, erasing some of the record losses incurred the previous day. The Nikkei 225 index surged 10% and the broader Topix index climbed around 9%, signaling a strong rebound from the historic plunge.
Market Rebound
The Nikkei 225 had experienced its largest percentage drop since October 1987 on Monday, plunging 12.4% and losing 4,451 points, the largest point decline ever recorded. The drastic fall contributed to a global market rout, impacting major Asian, European, and US indices. However, Tuesday’s recovery brought optimism back to the market:
South Korea’s Kospi: Up 3.3%
Taiwan Stocks: Increased by 3.4%
Australia’s S&P/ASX 200 and China’s Shanghai Composite: Both rose 0.4%
Hong Kong’s Hang Seng Index: Up 0.3%
Analysts’ Perspective
Neil Newman, Head of Strategy at Astris Advisory, suggested that the rebound is typical following a market crash. Despite the recovery, he cautioned that it is too early to determine if the Japanese market has hit its bottom. Analysts from UBS emphasized that any substantial recovery might depend on the upcoming earnings reports from Japanese corporates in October and the US presidential election in November.
The rapid appreciation of the yen, which had reached a seven-month high of around 143 against the US dollar, had significantly impacted Japanese exporters. The yen’s rise, driven by the Bank of Japan’s (BOJ) recent interest rate hikes and its shift towards a more hawkish monetary policy, triggered a sell-off in yen carry trades—investments that borrow cheaply in yen to invest in higher-yielding assets elsewhere.
Impact on Global Markets
The unwinding of these carry trades, along with growing fears of a US recession, had caused a global market downturn starting from Friday. The Japanese market, in particular, felt the effects acutely due to its significant reliance on export-driven industries.
BOJ Policy and Economic Outlook
The BOJ’s recent policy decisions, including a second interest rate hike for the year and plans to taper bond buying, have contributed to market volatility. Analysts from Moody’s Analytics and Stephen Innes of SPI Asset Management noted that the abrupt shift in monetary policy and the yen’s strength have exacerbated market turbulence.
Japanese Prime Minister Fumio Kishida urged for calm and assured that the economy remains fundamentally strong, citing the recent increase in inflation-adjusted real wages as a positive sign. Despite the market upheaval, Kishida expressed confidence in the economy’s resilience and emphasized the importance of careful evaluation of market conditions.
Looking Ahead
While the short-term outlook for Japanese equities remains uncertain, the rebound seen on Tuesday provides a glimmer of recovery. Market participants will be closely watching upcoming economic data and policy decisions to gauge the stability and direction of the Japanese stock market and the broader global financial landscape.
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