(Bloomberg) — Japanese stocks rose after falling to key technical levels the previous day in a bear market.
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The Nikkei 225 stock average and Topix rebounded more than 10 percent, the most since October 2008, as exporters such as technology companies and automakers rose after the yen fell about 1 percent against the dollar. Banks rose 10 percent, after a 17 percent slide on Monday, while yields on 10-year government bonds rose 15 basis points. All 33 Topix industry indicators rose.
Volatile market conditions earlier led to a turnaround in Nikkei futures, with the indicator’s implied volatility falling to its highest level since 2008. The benchmarks fell 12% on Monday amid a broad flight from risks amid a stronger yen, tighter monetary policy and concerns about the U.S. economic outlook.
“The panic selling may be over,” said Hideyuki Ishiguro, chief strategist at Nomura Asset Management Co. “Still, price action today is likely to be a rollercoaster ride as fear mounts in global markets.”
Charts suggested the market was ripe for a recovery. The Toraku ratio, which tracks the ratio of stocks that rose and fell over the past 25 days, has fallen to its lowest level since October 2023 and is approaching the 70 level that some traders see as a turnaround signal.
“We are not seeing a rally in risk appetite as such, but a healthy correction after an unhealthy sell-off caused by investors looking en masse for a small exit,” said Matt Simpson, a senior market strategist at City Index Inc.
Even with a recovery, Japanese stocks are likely to remain at bear market levels in the near term after a sharp three-day decline sent stock indexes down more than 20% from their July peak.
“As the magnitude of the decline in Japanese equities yesterday proved to be much larger than that of Europe and the US, market participants now recognize that the correction was excessive,” said Tomo Kinoshita, global market strategist at Invesco Asset Management Japan. “However, this does not mean that the market correction is over. Weak economic data in the US could still lead to further sell-offs in the US and the rest of the world, including Asia.”
–With assistance from Winnie Hsu.
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