Tokyo stocks surged more than 10% Tuesday, bouncing back from a record selloff the previous day on worries over the U.S. economy and a stronger yen.
The benchmark Nikkei 225 index jumped 10.33%, or 3,249.36 points, to 34,707.78, while the broader Topix index added 10.26%, or 228.49 points, to 2,455.64.
On Monday, the Nikkei had closed down 12.40%, or 4,451.28 points — its largest points drop in history.
“The market is seen starting sharply higher, as it should perform a natural rebound after yesterday’s plunge while dollar-yen moves towards the yen’s depreciation,” Monex said.
The brokerage said it expected nervous trade to continue with a focus on forex movements.
“After the breathtaking and historic moves seen across Asian markets yesterday, driven predominantly by a significant liquidation of margin positions, we look for a solid counter rally on open today,” Chris Weston, head of research at broker Pepperstone, said Tuesday.
However, he cautioned that the level of implied volatility for the Nikkei was at a stratospheric 70%, suggesting fireworks were likely for some time yet.
“After such a furious shake-out of leveraged positioning, with Japanese banks absolutely taken to the cleaners, it will take the bravest of investors to buy with any conviction.”
The yen weakened sharply to ¥146.01 against the dollar in early Asian trade, having surged on Monday to ¥141.73, a level not seen since early January.
A stronger yen is a negative factor for Japanese exporters, and the recent rally has been fueled by central bank policy decisions that have reversed the trends of recent years.
The Bank of Japan last week raised interest rates for the second time in 17 years, with talk of another rate hike to come, while the U.S. Federal Reserve has hinted at a cut as soon as September.
