Recovery Begins in the Japanese Stock Market After Worst Single Day Crash in 36 years

The Stock Market in Japan has began a rebound after the NIKKEI index kept declining to record lows since the past 5 days.

Why is this happening?

Investors & hedge funds who were into carry trades where they borrowed in Yen to invest in US Dollar assets began liquidating their carry trades due to fears the US may be in a recession soon. Why? A disappointing US jobs report fueled fears that the US Federal Reserve may cut interest rates.

Unwinding carry trades meant they sold US assets, and used the proceeds to pay back loans taken in Yen. this caused the Japanese Yen to appreciate.

In a cascading effect, Investors in Japan got spooked by the rising Yen and began selling off their Japanese shares hence the NIKKEI Index tumbled.

Recovery

The US Federal Reserve has held their FOMC meeting and decided to leave rates untouched hence calming the waters. However, as at today, the Nikkei is up 10.2% by 3,217 points.

Source: https://apnews.com/article/japan-stocks-nikkei-markets-yen-9fc2c2d7b2f85be89e8dd2db4054b9c5