Japanese Stocks Rise for Second Day Amid Heightened Volatility

  • Topix index pares gain of as much as 2.2% in late trading
  • SoftBank soars after announing plans for record share buyback

Japanese stocks rose for a second day amid heightened volatility, extending the biggest gain in the Topix index for more than seven years as global equities rebound. SoftBank Group Corp. surged by its limit after announcing a record share buyback.

The Topix advanced 0.4 percent to 1,297.01 at the close in Tokyo, having swung between gains of as much as 2.2 percent and a loss of 1.2 percent. The gauge surged 8 percent on Monday, its best increase since October 2008. The Nikkei 225 Stock Average added 0.2 percent to 16,054.43 Tuesday. The yen traded at 114.60 per dollar after weakening for two days amid declining demand for haven assets. Stocks in Europe followed Japan’s lead from Monday, posting their biggest two-day gain in more than four years, while U.S. markets were closed for a holiday.

“Japanese markets have been swung around by outside factors, but those factors are becoming more positive,” Toshihiko Matsuno, chief strategist at SMBC Friend Securities Co. in Tokyo, said by phone. “But still volatility is very high and market sentiment is fluctuating. It is too early to say we have seen the bottom.”

The Topix has swung more than 3 percentage points intraday in each of the past six sessions, twice closing with drops of more than 5 percent. Ten-day volatility for the Topix is at the highest level since the March 2011 earthquake. Volume was 16 percent above the 30-day average on Tuesday.

Developers and insurers led gains among the 33 Topix industry groups. Toshiba Corp. jumped 8.2 percent after the Sankei newspaper reported the struggling company will end computer production and is in talks to sell its Chinese plant. Brewer Kirin Holdings Co. slumped 8.7 percent, the most on the Nikkei 225, after posting its first annual loss since 1949.

SoftBank Jumps

SoftBank surged 16 percent after saying it is prepared to spend a record 500 billion yen ($4.4 billion) buying back stock after the Japanese wireless carrier saw its shares drop to their lowest since buying Sprint Corp. in 2013. SoftBank will purchase as many as 167 million shares, or 14.2 percent of its stock, using cash holdings and the proceeds of asset sales.

For many market watchers, Japan’s rebound was overdue as technical signals have been flashing that stocks were oversold for a month. With the Topix down 23 percent for the year through Friday, shares were trading at book value. The last time valuations were that low was the beginning of Prime Minister Shinzo Abe’s administration, when stocks were beginning a rally that would see the index double over the next three years.

Investors are jumping back into riskier assets after global equities tumbled into a bear market last week, weighed down by plunging commodity prices, concerns about slowing economic growth and disillusionment in the ability of central banks to buoy financial markets. Bearish bets in Tokyo fell on Monday, the first time the short-selling ratio fell below 40 percent of total trading value in Japan in six days.

Economy Shrinks

A renewed contraction in the Japanese economy was also seen as positive for stocks, bringing with it the prospect of even more stimulus by the Bank of Japan. Gross domestic product shrank an annualized 1.4 percent in the last three months of 2015, more than the 0.8 percent decline expected by economists.

“The Bank of Japan does have the capacity to increase its easing program as economic growth slows,” said Niv Dagan, executive director at Peak Asset Management LLC in Melbourne. “We see some further stimulus, not only from the Bank of Japan, but also in Europe and we don’t see U.S. interest rates rising in the next six months or so.”

The Stoxx Europe 600 Index rose 3 percent as European Central Bank President Mario Draghi said policy makers would act if financial turmoil threatened price stability while giving testimony to the region’s parliament. Oil rose a second day on Monday, while gold fell the most since July. E-mini futures on the Standard & Poor’s 500 Index added 0.3 percent on Tuesday.

The global stocks rally continued across Asia on Tuesday. China’s Shanghai Composite Index added 2.9 percent amid speculation the government will take more steps to bolster the economy. Data also showed that new credit in Asia’s biggest economy surged to a record as a seasonal lending binge coincided with a recovery in property prices, and as companies paid back foreign currency loans amid yuan weakness.

“China’s credit expansion is good news,” said Seki Orimi, a senior investment strategist at Tokyo-based Mitsubishi UFJ Morgan Stanley Securities Co. “It’s good that money is being moved around when the economy is slowing.”

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