Anthony Rowley

Macroscope | Japan stock shock shows volatility is back with a vengeance

Markets are beginning to reflect and respond to a fast-growing sense of uncertainty and insecurity in the wider world

Reading Time:3 minutes

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People look at the stock quotation board at the Tokyo Stock Exchange on August 6. After suffering its worst day in percentage terms since 1987 on Monday, Japan’s Nikkei 225 notched one of its best days and rose more than 10 per cent on Tuesday, recovering most of the ground lost. Photo: Reuters

Anthony Rowley

Published: 4:30pm, 10 Aug 2024

What is going on? Japanese Prime Minister Fumio Kishida proclaims his “new capitalism”, Japanese investors pile into stocks, driving the Nikkei average up to record highs, only for the Tokyo market to collapse like a house of cards and then partially bounce back. Other major markets have traced similar trajectories, although not of the same magnitude.

Tokyo’s sudden crash and equally sudden partial recovery speaks of a market support operation by the Bank of Japan (BOJ), which already held some 37 trillion yen (US$253 billion) of equity exchange-traded funds (ETFs) before the crash. This should not be mistaken for a true recovery.

As Reuters’ Jamie McGeever noted in a commentary this week, “day-to-day swings of this magnitude based on not a lot of fresh or major market-moving news are red flags. They’re typical of more protracted and volatile downturns, and many investors are adopting a cautious stance”.

Major markets – not least Wall Street – have been gyrating wildly. A simple case of midsummer market madness, perhaps? No, there is much more to it than that. Markets are beginning to reflect and respond to a fast-growing sense of uncertainty and insecurity in the wider world.

At the global level, this stems not from things such as shifting interest rates and inflation, though many analysts seem incapable of seeing beyond those. It reflects the growing risk of economic recessions, regional or global conflicts erupting, climate change, pandemics and many other threats.

Most of all, it means that more people are beginning to question whether their savings and investments are being well-managed and, if so, why financial markets are so volatile and prone to bubbles and busts at seemingly regular intervals.