Volatile Japan Indexes Rebound 10% Following Historic Plunge In Monday's Trading

Akira Ito
06 Aug, 2024
Tokyo

After a day of tumultuous trading, benchmark indexes in Tokyo recouped losses in the previous session as market sentiment stabilized. 

The Nikkei 225 and the Topix indexes jumped around 10% as investors searched for bargains after three-day losses totaled nearly 20%. 

In fact, the surge in Tuesday's trading was the largest-ever increase in points in the Nikkei 225's history, surpassing its previous increase of 2,676.55 points in October 1990. 

The Nikkei 225 stock plunged more than 12% in Monday's trading as currency traders unwound the so-called "carry trade." 

Carry trade had dominated currency market speculation for more than a decade, where investors borrowed money in the Japanese yen and invested in U.S. or European assets that yielded a higher annual return. 

However, that currency arbitrage became far more risky after the Bank of Japan unexpectedly increased its policy rate for the second time in a row since March and signaled additional rate hikes. 

Benchmark indexes accumulated nearly 20% of losses over the three days to Monday, amid rising market anxieties after currency traders unwound the carry trade, investors walked away from frothy valuations of the artificial intelligence-linked stocks, and the strong rebound in the yen dented the earnings growth outlook of exporting companies. 

On Tuesday, the yen weakened to 145.34 from 141.43 against the U.S. dollar in Monday's trading. 

On the economic front, average cash earnings increased 4.5% in June, accelerating from an upwardly revised 2% in May, the Ministry of Health, Labor, and Welfare reported Tuesday. 

Japan's nominal wage increase outpaced the core inflation rate of 2.6%, leading to the first gain in real wages in 27 months. 

The average of household spending in Japan was up a seasonally adjusted 0.1% on month but fell 1.4% in real terms on the year in June, the Ministry of Internal Affairs and Communications said on Tuesday. 

Household spending in June was 280,888 yen and the real average of monthly income per household increased 3.1% from a year ago to 957,457 yen.

 

Japan Stock Movers 

The Nikkei 225 stock average soared 10.2% to 34,675.46, and the Topix index advanced 9.3% to 2,434.21. 

Widely followed advanced chipmaking equipment makers rebounded, and Tokyo Electron, Advantest, and Screen Holdings jumped between 10% and 15%. 

Leading banks also participated in the market's rebound. 

Mitsubishi UFJ gained 5.8% to ¥1,318.0, Sumitomo Mitsui Financial declined 2% to ¥8,000.0, and Mizuho Financial Group jumped 5.6% to ¥2,596.50. 

Honda Motor, Toyota Motor, and Nissan Motor gained between 10% and 12%. 

Kikkoman soared 21% to ¥1,744.0 after the food products maker reported a surge in net income in the June quarter. 

Revenue increased 12% to 178.22 billion yen, and net income soared 70% to 18.1 billion yen. 

The company also reiterated its annual net income outlook of 57.60 billion yen and its net sales estimate of 685 billion yen.