Japanese stocks rise as Asia recovers from global market turmoil

(MENAFN) Japanese stocks experienced a significant rebound, leading the charge in Asia, as they recouped some of the massive losses incurred during Monday’s global market sell-off, which saw billions of dollars wiped from markets spanning from New York to London. The main stock indexes in Japan surged nearly 11 percent, recovering after a dramatic 12 percent plunge the previous day. Similarly, South Korea's Kospi index saw a rise of over 3 percent. However, stock movements in Hong Kong and China remained relatively flat. The early positive indicators suggest that traders are regaining their composure following a tumultuous session, during which Wall Street’s “fear” gauge, the VIX, soared to its highest level since 1990.

According to Tomo Kinoshita, a global markets strategist at Investco Asset Management in Tokyo, the rebound in Japanese stocks is likely to set a positive tone for the rest of Asia. Kinoshita noted that the previous day’s steep decline in Japanese stocks was much more severe than the drops seen in European and U.S. markets. This realization has led market participants to conclude that Monday’s market correction in Japan was excessively harsh, prompting a recovery. Speculation about a potential U.S. recession, diminishing excitement around artificial intelligence, and a strengthening Japanese yen, which triggered the unwinding of carry trades, all contributed to the three-day sell-off in global stocks.

Carry trades involve borrowing a currency with a low interest rate and using the borrowed funds to purchase assets in a currency with a higher interest rate, aiming to profit from the interest rate differential. For instance, an investor might borrow Japanese yen at a very low interest rate and then invest those funds in higher-yielding U.S. bonds. The recent rise in the Japanese yen has made these trades less attractive, contributing to the liquidation of positions and further market volatility. Despite these challenges, the strong rebound in Japanese stocks offers a glimmer of hope for stabilization in the broader Asian market. 

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