Japanese stocks rebounded today from a brutal drop on Monday, underpinning a recovery across Asian share markets that were battered when poor US jobs data and fears of a recession sparked a panicked sell-off.
The Nikkei soared 10.2% to above 34,500 today, rebounding sharply from its 31,458 close on Monday,after central bank officials said all the right things to soothe investor nerves.
The index had plummeted 12.4% in the previous session in its worst-ever sell-off.
The wider Topix was up 7.5% at 2,394.33, and MSCI's broadest index of Asia-Pacific shares outside Japan was up 2.0%.
Wall Street also looked steadier with S&P 500 futures rebounding 1.5%, while Nasdaq futures rose 2% and the pan-region Euro Stoxx 50 futures advanced 1.24%.
The S&P 500 had lost 3.00% on Monday, with the Nasdaq Composite slumping 3.43%, extending a recent sell-off as fears of a possible U.S. recession spooked global markets.
A passerby gestures in front of an electronic board displaying the Nikkei stock average outside a brokerage in Tokyo, Japan, August 6, 2024
Electronic quotation boards display stock prices of Nikkei 225 on the Tokyo Stock Exchange in Tokyo on August 6, 2024
Investors had been shaken by last week's plunge in global stock markets, U.S. recession risks, and worries investments funded by a cheap yen were being unwound, triggering a sell-off in Japanese equities on Monday.
From July 11 to Monday's close of 31,458.42, the Nikkei has seen 113 trillion yen ($792 billion) wiped off its peak market value.
Traders said they now appeared to be reconsidering the severity of their initial response, buying back shares on the dip.
'Fundamentally, nothing significant has changed for the Japanese economy. It is the unwinding of the carry trade driving a lot of the momentum sells,' said Ray Sharma-Ong, head of multi-asset investment solutions for Southeast Asia at abrdn.
The Nikkei rally helped lift other Asian stock markets. Overnight, safe-haven US yields too had risen from lows in a sign the panic was abating.
But uncertainties remained, with analysts pointing to the possibility of more volatile market moves in the near-term.
Khoon Goh, head of Asia research at ANZ, noted that the Nikkei also rebounded to varying degrees after the three previous occasions when it experienced double digit declines, including in the wake of the global financial crisis in 2008 and Tohoku earthquake in 2011.
'But it took a while before the Nikkei clawed back all those losses,' he said.
'The Nikkei's enjoying a decent retracement against Monday's plunge, as comments from the Fed's Daly and a stronger-than-expected ISM services report soothed fears of a panic Fed cut next week,' said Matt Simpson, a senior market analyst at City Index in Brisbane.
'But this is not exactly a risk-on rally. And we are not yet sure if this is just a breather between water-boardings or there is more pain to follow.'
Japanese officials are now scrambling to steady markets, with Prime Minister Fumio Kishida urging caution and calling on market participants to stay calm.
A man looks at an electronic board displaying Topix and Japan's Nikkei share averages outside a brokerage in Tokyo, Japan, August 6, 2024
An electronic quotation board displays share price on the Tokyo Stock Exchange in Tokyo on August 6, 2024. Tokyo stocks bounced back in early trade on August 6 following a historic selloff on worries over the US economy and a stronger yen
In the US meanwhile, Federal Reserve officials did their best to reassure markets and calm nerves over the US economy, with Fed San Francisco President Mary Daly saying it was 'extremely important' to prevent the labour market tipping into a downturn.
Daly said her mind was open to cutting interest rates as necessary and policy needed to be proactive.
Monday's collapse was a 'reminder that it is next-to-impossible to diversify equity risk by region (or by sector or style) during major corrections or bear markets,' said Stephen Dover, chief market strategist and head of Franklin Templeton Institute.
'Opportunity will arise, but in our view, it is premature to step in at this point.'
Last week, the BOJ raised interest rates to levels unseen in 15 years, a hawkish move that analysts also say spooked the market especially given fears of a possible US recession.
'The market was afraid (the BOJ) may tighten too fast,' said Kenji Abe, chief strategist at Daiwa Securities.
BlackRock Investment Institute said on Tuesday that they see a 'greater risk of a BOJ policy misstep' and are reviewing their Japan overweight position.
On Tuesday, large price rebounds were led by big name technology shares such as chip-related stocks Tokyo Electron , up 15%, and Advantest, rising over 13%.
AI-focused startup investor SoftBank Group jumped 8.6%.
Currencies also seemed to be reversing some of Monday's sharp moves, as the dollar edged up to 145.64 yen, having sunk 1.5% on Monday to as deep as 141.675.
The yen has shot higher in recent sessions as investors were squeezed out of carry trades, where they borrowed yen at low rates to buy higher yielding assets.
