Japanese shares climbed almost 6 percent in heavy volume on Wednesday, a vigorous rebound for a fragile market still down by more than a tenth on pre-earthquake levels and seen as vulnerable to a further sell-off. Hedge funds rushed to cover short positions in futures after Japan's quake and resulting nuclear crisis triggered the biggest two-day fall since the 1987 crash.
Foreign institutional investors were seen buying in a sign that some believed the selloff had gone too far. The market remained choppy, swayed by each new development at the stricken nuclear facility north of Tokyo and with aftershocks from Friday's massive earthquake still rattling the capital.
Nikkei, TOPIX finish near highs, volume 2nd highest ever "The market in general understands that Japanese shares are oversold, but uncertainty in the Fukushima nuclear power plant is clearly making market participants very nervous," said Kazuhiro Takahashi, general manager at Daiwa Securities Capital Markets in Tokyo. The market capitalisation of Tokyo Stock Exchange's first section of big companies rose $222 billion after the combined drop on Monday and Tuesday had wiped off $626 billion.
Japanese government bonds took a hit from the rebound in stocks, but a solid auction of 20-year bonds helped soothe jitters among dealers about big portfolio managers needing to sell debt to raise cash. The yen slipped as market players shifted back into higher-yielding currencies after slashing carry trades the previous day. The dollar edged up slightly to 80.95 yen but was still not far from a record low of 79.75 hit against the Japanese currency in 1995. The Australian dollar was the biggest gainer against the yen.
Traders were keeping an eye out for Japanese companies and insurers selling their hefty foreign asset holdings and repatriating funds to cover costs from the nuclear crisis, quake and tsunami, a factor that could drive the yen higher. So far most traders have not seen much fund repatriation and if anything insurers buying foreign currencies on Wednesday.
The Bank of Japan was seen checking rates on currencies with banks in Tokyo, traders said, a warning it could intervene against any further yen strength that would deal another blow to the economy. Japan's finance minister said he was watching the currency market closely.
"It kind of makes you feel that they are ready to intervene if the dollar falls below 80 yen," said a Japanese bank trader. The situation at the Fukushima Daiichi nuclear plant 240 km (150 miles) north of Tokyo was tense. Another fire broke out on Wednesday at the plant, which has sent low levels of radiation wafting into Tokyo in the past 24 hours, prompting some people to flee the capital.
Some traders said the BOJ's supply of cheap funds reduced the need for repatriation, and most felt it would take Japanese insurers weeks to assess their cash needs before deciding to sell any foreign assets. The Nikkei climbed 5.7 percent to 9,093.72 points after having plunged 10.6 percent on Tuesday, but was still down about 11 percent from Friday's close. The volume on the Tokyo Stock Exchange's first section was 4.9 billion shares, just ahead of Monday's high and the second highest on record after Tuesday's all-time high of 5.8 billion shares.
Share of Sony Corp and Toyota Motor Corp bounced back after getting swept up in the fierce selloff. Sony's shares jumped 8.8 percent. As of Tuesday, Sony was trading at 15.6 times estimates of 12-month forward earnings, Thomson Reuters I/B/E/S data showed - about half its 10-year average valuation.