Japanese stocks climbed on Friday, taking their momentum from the overnight surge on Wall Street and bringing an upbeat end to one of the most turbulent weeks in Tokyo market history.
The broad Topix index rose about 1.5 per cent on Friday, matched by similar gains in the narrower Nikkei 225 and the broader Asia-Pacific region. The yen, whose rapid surge had played a central role in Monday’s crash in Tokyo shares after a Bank of Japan rate rise, traded relatively flat at about Y147.3 against the dollar.
On Thursday, US equities posted their strongest daily gain since November 2022 as a drop in US unemployment claims helped soothe fears about an imminent economic slowdown.
Concerns around the US economy remain the overwhelming driver of sentiment, traders said. A week earlier, a more negative-looking jobs report stoked recession fears and helped trigger the massive, record-breaking sell-off in Tokyo on Monday that wiped 12 per cent off the major Japanese stock indices.
On Tuesday, with brokers able to convince investors the sell-off had been wildly overdone, shares rebounded with their biggest one-day gain since 2008. On Friday, the Topix had sufficiently recovered to be only 1.5 per cent lower on the market close a week earlier.
Strong corporate earnings, share buybacks and better corporate governance had returned confidence to the Japanese market after Monday’s shock sell-off, said Naoya Fuji, equity strategist at Nomura.
“If market conditions continue to recover, we have to be cautious on the BoJ resuming their hawkish stance,” he said, referring to the rate rise last week.
On Thursday, the benchmark S&P 500 rose 2.3 per cent, closing out its best day in almost 21 months, while the technology-heavy Nasdaq Composite added 2.9 per cent — its biggest daily gain since February. The rally has helped retrace some of the losses suffered through this week’s steep sell-off.
Indices in the rest of Asia broadly followed suit. Hong Kong’s Hang Seng index rose 2 per cent on Friday morning, Korea’s Kospi climbed 1.5 per cent and Taiwan’s TWSE was up 3 per cent on the back of an Asian semiconductor stock rally led by chipmaker TSMC.
The advances follow data showing that new US applications for unemployment aid — seen as a proxy for job cuts — had fallen to their lowest level in a month.
“It was the jobs report last week that sent markets into a tailspin,” said Kristina Hooper, chief global market strategist at Invesco, so “it makes sense it was a labour market point that would calm markets” this week.
Figures from the US labour department on Thursday gave a reading of 233,000 for initial state unemployment claims in the week ending August 3 on a seasonally adjusted basis, down from the previous week’s upwardly revised level of 250,000 — and below economists’ forecasts of 240,000.
By contrast, last week’s payrolls report showed the world’s biggest economy added just 114,000 jobs in July, far fewer than consensus predictions of 175,000 — sending share prices sharply lower in volatile trading on Friday and Monday, and triggering a steep rally in government bonds as investors cranked up their bets that the Federal Reserve would need to cut interest rates imminently.
The Vix index of expected US stock market turbulence, known as Wall Street’s “fear gauge”, had briefly topped a reading of 60 on Monday, well above its long-term average of about 20, before retreating.
That gauge of volatility sat at roughly 24 on Thursday, but the day’s share gains still left the S&P about 2.3 per cent off its week-ago close.
For Tim Murray, multi-asset strategist at T Rowe Price, the unemployment report was “a big positive surprise after we’ve seen this run of negative surprises”.
Invesco’s Hooper pointed to an “ongoing process of healing — but with the caveat that markets are going to be on edge because nothing has changed with the Fed. They are not going to do any kind of rate cut before the September meeting.”
“I think it’s going to take time for markets to normalise but we have to ask ourselves what triggered that sell-off, and I think it was irrational,” she added. “I don’t think it’s telling us that we have a big recession coming.”
Equities had until recently had a particularly strong run, driven by hopes of a “soft landing” whereby the Fed successfully brings down inflation without triggering a recession, and by enthusiasm for artificial intelligence companies.
Murray noted that chipmaking giant Nvidia’s second-quarter earnings are due later this month. Those figures “always have read-throughs for the broader AI infrastructure complex,” he noted. “That might be something that really supercharges the market.”
