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Japanese stocks rose on Wednesday, falling sharply at the open before rebounding to book a gain, as investors absorbed record volatility in recent sessions and broader turbulence in global stock markets.
In what traders said was a measure of the volatility the Japanese market should expect in the coming days, the broad Topix index fell about 2 percent in the first minutes of trading. Then, led by shares of major banking groups Sumitomo Mitsui, MUFG and Mizuho, the index quickly reversed course to trade 2.2 percent higher.
Trading on the narrower, technology- and retail-heavy Nikkei 225 followed a similar pattern, first falling and then rising 2.2% on the day.
“This is the market trying to make sense of what happened in the last two days. And the truth is, it doesn’t make much sense yet,” said a Tokyo stock broker.
Markets in the rest of Asia followed suit. Korea’s Kospi index rose 1 percent aVsceker an early decline. Taiwan’s benchmark index rose 1 percent in early trading. Australia’s S&P ASX 300 was flat aVsceker early losses.
Japanese stocks have broken a series of records: their combined 20 percent decline in the three sessions from last Thursday to Monday of this week was the biggest ever, wiping the equivalent of $1.1 trillion off the value of one of the world’s largest markets. But on Tuesday, the Topix and Nikkei climbed nearly 10 percent in their steepest rally in nearly 16 years.
The two main drivers of volatility in the Japanese market have been last week’s unexpected rate hike by the Bank of Japan and growing fears of a recession in the United States. “The biggest concern among market participants is whether pessimism about the U.S. economic outlook has gone too far… markets will remain highly sensitive to U.S. inflation and employment statistics for the foreseeable future,” said Sho Nakazawa, equity strategist at Morgan Stanley MUFG.
The BoJ rate hike added further momentum to the yen, which has risen about 10 percent since hitting a multi-decade low in July. The sharpness of that increase also triggered a global halt in the yen carry trade, which is believed to have fueled speculative investment in assets around the world, including U.S.-listed tech names.
“The Nikkei has essentially returned to its 2024 starting point, before the market surge, driven by a combination of the outlook for monetary easing in the U.S. and U.S. interest rates ‘higher for a longer period,’” said Naoki Kamiyama, chief strategist at Nikko AM.
“We should keep in mind that the slide in Japanese stocks has been seen as driven in part by macro trends that the indices follow… The slide they induced could ultimately pave the way for others, particularly retail investors, to tiptoe into the market once volatility shows signs of stabilizing.”
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