Japanese stocks rise more than 9% after falling into a bear market

Japanese stocks rose after their bear market plunge during the previous day's trading, which took them to key technical levels.

The Nikkei 225 stock average and the Topix rebounded more than 9%, the biggest gain since October 2008, as exporters such as technology companies and automakers rose after the yen fell about 1% against the dollar.

Banks gained 3.9 percent and 10-year government bond yields rose 14 basis points as an auction of new debt met the weakest demand since 2003. All 33 Topix industrial gauges rose.

An electronic stock board outside a securities firm in Tokyo on Aug. 6. Image: Kiyoshi Ota/Bloomberg

The sharp moves triggered a circuit breaker for Nikkei futures, while the gauge's implied volatility retreated from its highest level since 2008. The blue-chip average posted its best daily gain in yen terms a day after its worst drop on record.

“Panic selling may have come to an end,” said Hideyuki Ishiguro, chief strategist at Nomura Asset Management Co. “Still, today’s price moves will likely be like a roller coaster due to rising anxiety in the global market.”

Benchmark indexes fell 12% on Monday in a broad flight from risk amid a stronger yen, tighter monetary policy and concerns about the outlook for the U.S. economy, sending major stock indexes into a bear market.

The government and the Bank of Japan agreed to closely monitor developments in the economy and financial markets with a sense of urgency, Vice Finance Minister for International Affairs Atsushi Mimura said after a meeting between the Finance Ministry, the BOJ and the Financial Services Agency.

Charts were signaling the market was ready for a rebound. The Toraku index, which measures 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 take as a sign of recovery.

“We're not seeing a risk-on rebound as such, but rather a healthy correction after an unhealthy sell-off, triggered by investors rushing to find a small exit,” said Matt Simpson, senior market strategist at City Index.

Better-than-expected U.S. ISM services data for July on Monday may have offered “some calm amid jitters about a hard landing,” said Jun Rong Yeap, market strategist at IG Asia Pte. Speculation about an impending U.S. recession was partly behind the three-day plunge in global stock markets.

But even with the recent rally, Japanese stocks will likely remain at bear market levels in the near term as investors remain nervous.

“As the magnitude of the fall in Japanese stocks yesterday turned out to be much larger than that in Europe and the United States, market participants now acknowledge 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 United States could still trigger further selling in the United States and the rest of the world, including Asia.”

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