TOKYO: Japanese shares swung up and down in morning trade on Wednesday in a rollercoaster week of double-digit losses and gains that led the Bank of Japan’s deputy governor to reassure the market there would be no interest rate rises amid the volatility.
The Nikkei was up 2.3% at 35,464.61 by the midday break, after falling more than 2% earlier in the session.
The broader Topix was up 3.3% at 2,514.52.
The moves follow a 10% jump in the Nikkei on Tuesday, its third biggest one-day percentage gain, as the index clawed back most of its losses from Monday’s 12% plummet.
The double-digit plunge was the market’s biggest single day rout since the 1987 Black Monday crash.
Fears of US recession risks and the unwinding of investments funded by a cheap yen sparked market stress, and a hawkish turn by the Bank of Japan (BOJ) last week raised alarm about how fast the central bank would tighten monetary policy.
BOJ Deputy Governor Shinichi Uchida addressed those worries on Wednesday, saying it won’t hike rates when financial markets are unstable.
“As we’re seeing sharp volatility in domestic and overseas financial markets, it’s necessary to maintain current levels of monetary easing for the time being,” Uchida said in a speech to business leaders in the northern Japan city of Hakodate.
While the yen had appreciated again since reversing on Tuesday from a seven-month peak hit at the beginning of the week, it weakened against the dollar following Uchida’s remarks.
“His comments have become a trigger for slowing down the pace of unwind in the yen’s carry trade,” said Kentaro Hayashi, senior strategist at Daiwa Securities.
Japanese shares rally hard after biggest sell-off
The Nikkei’s moves are not directly driven by yen carry trades, however a rising or volatile yen impacts corporate earnings and influences decisions by Japanese retail and institutional investors on allocations to their home markets.
The market rallied in the wake of Uchida’s comments, with the Nikkei gaining as much as 3%, further narrowing losses from the plunge on Monday.
Comments from Federal Reserve officials this week and more economic data have also soothed some concerns of a downturn in the United States, but market participants are keeping a vigilant eye on developments.
“The biggest concern in the markets ahead will be whether fears of a US recession will ease,” leaving them highly sensitive to inflation and jobs data for the time being, wrote Morgan Stanley MUFG analysts in a note to clients.
Looking further ahead, a lot will depend on whether BOJ allows the virtuous inflation cycle to play out, said Chi Lo, senior market strategist, Asia Pacific, at BNP Paribas Asset Management.
“If the BOJ remains accommodative despite policy normalisation … the Japanese stock market’s longer-term outlook should remain benign.”
Among individual shares, the largest percentage gainers in the Nikkei were Disco Corp up 13.61%, followed by Mitsubishi Heavy Industries gaining 12.58% and Canon Inc up by 10.8%.
Heavyweights SoftBank Group and Tokyo Electron rallied 6.2% and 3.1%, respectively, to give the index the largest lift.