(Bloomberg) — Japanese stocks surged after their plunge into a bear market during the previous day’s trading brought them down to key technical levels.
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The Nikkei 225 Stock Average and Topix rebounded more than 10%, the most since October 2008, as exporters such as tech companies and automakers surged after the yen slumped about 1% against the dollar. Banks soared 10%, after tumbling 17% on Monday, while yields on 10-year government bonds jumped 15 basis points. All 33 of the Topix industry gauges climbed.
Volatile market conditions set off a circuit breaker for Nikkei futures earlier, with the gauge’s implied volatility coming off of its highest level since 2008. Benchmarks tumbled 12% on Monday in a broad flight from risk amid a stronger yen, tighter monetary policy and concern over the US economy’s outlook.
“Panic selling may have run its course,” said Hideyuki Ishiguro, chief strategist at Nomura Asset Management Co. “Still, price movements today will probably be like a roller coaster ride because of rising anxiety in the global market.”
Charts signaled the market was ripe for a rebound. The Toraku ratio — which tracks the proportion of stocks that rose and fell over the past 25 days — has fallen to its lowest since October 2023 and is approaching the level of 70 that some traders take as a turnaround signal.
“We’re not seeing a risk-on rally as such, but a healthy correction after an unhealthy selloff, triggered by investors stampeding for a tiny exit,” said Matt Simpson, a senior market strategist at City Index Inc.
Even with a rebound, Japanese stocks will likely remain at bear market levels in the short term after a steep three-day drop sent the equity gauges down more than 20% from their July peak.
“As the magnitude of the drop in Japanese stocks yesterday turned out to be much more than 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 indicators in the US could still bring further selloff in the US and the rest of the world, including Asia.”
–With assistance from Winnie Hsu.
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