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Japanese stocks soared on Wednesday and the yen plunged after a central bank official appeared to play down the immediate prospects of further interest rate rises in the face of volatile global trade.
In a speech on Wednesday, the Bank of Japan’s deputy governor Shinichi Uchida noted the sharp volatility in domestic and overseas financial markets and said “it is necessary to maintain current levels of monetary easing for the time being”.
Traders said the market was taking the comments as a signal that there was now unlikely to be another rate rise in Japan within the calendar year — a sharp reversal from last week’s comments by BoJ governor Kazuo Ueda, where he hinted that further tightening was coming.
As the yen dropped from about ¥144.7 against the dollar to below ¥147.6 after Uchida’s comments were reported, Japanese stocks in the Topix index soared more than 4 per cent.
Wednesday’s rally — which followed a heavy drop early in the session — was initially led by shares in large banking groups Sumitomo Mitsui, MUFG and Mizuho, and later boosted by gains in industrials and tech.
Trading in the narrower Nikkei 225, which leans heavily towards technology and retail, followed a similar path — plunging first, before surging more than 3 per cent higher on the day.
“This is the market attempting to make some sense of what has happened over the last two days. And the truth is that it still doesn’t make a lot of sense,” said one Tokyo-based equity broker.
Markets in the rest of Asia followed suit. Korea’s Kospi index was up 2.5 per cent after an initial fall. Taiwan’s benchmark index rose more than 3 per cent on Wednesday morning. Hong Kong’s Hang Seng index was up more than 1 per cent.
The Topix has returned to being one of the best-performing developed market indices in dollar terms outside of the US this year, doing better than the FTSE All-Share and Stoxx Europe 600.
Japanese stocks have broken a series of records — their combined 20 per cent fall over the three sessions from last Thursday to Monday this week was the heaviest ever, wiping the equivalent of $1.1tn off the value of one of the world’s biggest markets. But on Tuesday, the Topix and the Nikkei surged back by almost 10 per cent in their steepest rally in almost 16 years.
The two main triggers for the volatility in the Japanese market have been last week’s surprise BoJ rate rise and growing fears of a US recession. “The biggest concern among market participants is whether pessimism over the US economic outlook has gone too far . . . the markets will remain highly sensitive to US inflation and job statistics for the foreseeable future,” said Sho Nakazawa, Morgan Stanley MUFG equity strategist.
The BoJ rate increase added further propellant to the yen, which, until Wednesday’s reversal, had risen roughly 10 per cent since hitting a multi-decade low in July. The sharpness of that rise has also triggered a global unwind of the yen carry trade, which is believed to have fuelled speculative investment in assets around the world, including US-listed tech names.
“The Nikkei has essentially gone back to where it started in 2024, prior to the market rise which was driven by a combination of US monetary easing prospects and ‘higher for longer’ US interest rates,” said Naoki Kamiyama, chief strategist at Nikko AM.
“We need to keep in mind that the downturn in Japanese equities was seen to be led in part by macro trend-following index players . . . The downturn they induced could eventually pave the way for others, notably retail investors, to tiptoe into the market once volatility shows signs of settling down.”
Additional reporting by William Sandlund
