Anika Begay
By Brigid Riley
TOKYO (Reuters) – Japanese shares rallied strongly on Tuesday, recovering much of the double-digit losses suffered a day earlier, as U.S. Fed comments and data left investors reconsidering worries about the recession and stock valuations.
The rally, following the market’s biggest single-day plunge since the Black Monday sell-off in 1987, came as the yen reversed its gains, indicating that the carnage in yen-financed global carry trades was also easing.
In a choppy trading day, the Nikkei rose 8% to 33,975.53 by 0516 GMT, after falling 12.4% on Monday. The index was last up 2,623.1 points, having earlier jumped more than 3,000 points to surpass its biggest intraday point gain on record.
The broader index rose 7.5 percent to 2,394.33.
Investors had been rattled by last week’s plunge in global stock markets, recession risks in the United States and fears that investments funded by a weak yen would be liquidated, triggering a sell-off in Japanese shares on Monday.
Traders said they now appear to be reconsidering the severity of their initial response, which was to buy back shares on the decline.
“Fundamentally, nothing significant has changed for the Japanese economy. It’s the unwinding of the carry trade that’s driving a lot of the momentum selling,” said Ray Sharma-Ong, head of multi-asset investment solutions for Southeast Asia at abrdn.
The Nikkei rally helped lift other Asian stock markets. U.S. safe-haven yields also rose from their lows overnight, a sign that panic was abating.
But uncertainties remain and analysts highlight the possibility of more volatile market movements in the short term.
“We don’t yet know whether this is just a break from waterboarding or whether more pain will follow,” said Matt Simpson, senior market analyst at City Index.
Meanwhile, Japanese officials rushed to calm markets, with Prime Minister Fumio Kishida urging caution and urging market participants to remain calm.
An emergency trilateral meeting between the Ministry of Finance, the Financial Services Agency and the Bank of Japan is scheduled for 0600 GMT to discuss the market situation.
IS THE BOJ IN A HURRY?
Khoon Goh, head of Asia research at ANZ, noted that the Nikkei had also rebounded, albeit to varying degrees, after three previous occasions when it had posted double-digit declines, including after the 2008 global financial crisis and the 2011 Tohoku earthquake.
“But it took a while for the Nikkei to recover all those losses,” he said.
From July 11 to Monday’s close at 31,458.42, the Nikkei saw 113 trillion yen ($792 billion) wiped off its peak market value.
Monday’s plunge was a “reminder that it’s nearly impossible to diversify equity risk by region (or sector or style) during major corrections or bear markets,” said Stephen Dover (NYSE:), chief market strategist and director of the Franklin Templeton Institute at Franklin Templeton.
“Opportunities will arise, but we believe it is premature to intervene at this time.”
Last week, the BOJ raised interest rates to levels not seen in 15 years, an aggressive move that analysts said spooked the market, especially given fears of a possible U.S. recession.
“The market was concerned that (the BOJ) might tighten monetary policy too quickly,” said Kenji Abe, chief strategist at Daiwa Securities.
BlackRock (NYSE:) Investment Institute said on Tuesday it sees a “heightened risk of a BOJ misstep” and is revising its overweight stance on Japan.
The big price rebounds on Tuesday were led by big names in the technology sector, such as chip-related stocks Tokyo Electron, up 15%, and Advantest, up more than 13%.
SoftBank Group (TYO:), an investor in startups focused on artificial intelligence, jumped 8.6%.
Circuit breakers were triggered multiple times before and during the session, causing trading on Topix and Nikkei futures to be temporarily suspended.
