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Japanese stocks soared 6 per cent on Thursday morning in a turnaround just as dramatic as the previous day's plunge, as markets reassessed the economic implications of Republican Donald Trump's shock US presidential election victory.
Automakers and financials that were battered on Wednesday were bought back after the dollar jumped back against the yen in sympathy with receding risk-aversion and rise in US Treasury yields.
Expectations of higher inflation and economic growth under Trump, whose key policy priorities include generous tax cuts and higher infrastructure and defence spending, spurred the sudden reversal in market sentiment.
That propelled the Nikkei share average up 6.0 per cent to 17,221.02 in midmorning trade, recouping more than the 5.4 per cent lost on Wednesday in its biggest daily drop since Brexit in June.
With the market seeing extremely volatile trade for the past two days, some investors are scrambling to reposition themselves quickly, traders said.
“Those who dumped shares and hedged against further drops have no choice but to buy back immediately. It's like, they were being slapped in the face first by a surprise win by Trump, but hammered again by an unexpected surge in stocks in the next day,” said Takatoshi Itoshima, chief portfolio manager at Commons Asset Management. “Wherever they go, they are hit and bruised. It's been a market like that.”
The greenback was last down 0.4 per cent at 105.38 after rising as high as 105.95, its loftiest peak since July 27. It had fallen as low as 101.19 yen on Wednesday.
Exporters which stumbled on Wednesday were bought back, with Toyota Motor Corp soaring 5.4 percent and Honda Motor Co jumping 7.8 per cent.
Financials also attracted strong buying, with Nomura Holdings surging 9.6 per cent and Mitsubishi UFJ Financial Group soaring 11 per cent.
“Investors are puzzled with their emotional investment decisions. They were risk averse yesterday, then after seeing that Americans were optimistic chasing the market higher, they wasted no time reversing their positions,” said Takuya Takahashi, a strategist at Daiwa Securities.
“Some of the investors must be thinking that they shouldn't have sold after all.”
The broader Topix rose 5.2 per cent to 1,368.49 and the JPX-Nikkei Index 400 gained 5.2 per cent to 12,273.69.
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