Global markets breathe again: Japan’s Nikkei bounces back with a 10% jump

After a historic plunge that sent shockwaves through global markets, Japan’s Nikkei Index has made a dramatic recovery, surging by 10% today. This unexpected rebound comes just a day after the index experienced its steepest drop in 37 years, offering a sigh of relief to investors worldwide.

What happened: Tokyo’s Nikkei Index, which yesterday faced its worst decline in 37 years, with a staggering 12.4% drop accompanied by fears of a broader financial crisis looming.

Recovery reason: The quick recovery is attributed to multiple factors, including a slight depreciation of the Japanese yen, expectations of a rate cut from the Federal Reserve, and bargain buying in sharply declined stocks.

Yen weakness boosts markets

• The Bank of Japan recently raised interest rates to the highest level since 2008, strengthening the yen, which hit 141.60 against the dollar yesterday.
• Today, the USD/JPY pair climbed back above 145.00, signaling a weakening yen. This movement reassured investors, boosting stock markets globally.

Robots amplify panic?

Analysts suggest that automated trading systems may have exacerbated yesterday’s sell-off:

• Weak economic data from the U.S. heightened recession fears, leading to speculation of more aggressive rate cuts by the Fed.
• The panic selling, possibly driven by trading algorithms, created opportunities for bargain hunters, helping the market recover.

Global markets follow suit

• The global fear index (VIX) spiked to 65 yesterday, its highest since the pandemic, but has since dropped back to around 35.
• Asian markets, including South Korea and Taiwan, saw gains close to 4%, reflecting the easing of market tensions.

Is the rebound sustainable?

• U.S. futures indices also showed around a 1% increase today, hinting at a broader recovery.
• However, analysts caution that sustained market stability will depend on reassuring economic data and potential interventions by major central banks.