Japanese Stocks Surge by Most in Four Months as Bears Retreat

  • European equities jump most in month after ECB's Draghi speaks
  • Report Bank of Japan may also add to policy easing next week

Bank of Japan Under Pressure to Expand Easing

Japanese stocks surged by the most in four months as investors weighed prospects for central bank stimulus and bought back into a bear market to cover short positions.

The Topix index jumped 5.6 percent to 1,374.19 at the close in Tokyo, the most since Sept. 9 and paring its worst monthly loss since October 2008. The Nikkei 225 Stock Average soared 5.9 percent to 16,958.53, also supported by a report the Bank of Japan is considering extra monetary easing. Global equities halted losses on the brink of a bear market as oil rallied and the European Central Bank signaled it may boost stimulus.

“We’re seeing short squeeze galore,” said Mikey Hsia, a trader at Sunrise Brokers LLP in Hong Kong. “Much of this is technical. Japan has had big moves for three days in a row now -- it’s becoming common.”

All of the 33 Topix industry groups rose, led by developers, oil explorers and harbor transporters. Volume was 21 percent above the 30-day average. The index still closed down 2 percent for the week.

Sharp Corp. jumped 3.1 percent, extending Thursday’s 5.8 percent gain, after reports Taiwan’s Foxconn Technology Co. will offer $5.3 billion to acquire the struggling Japanese electronics company. SoftBank Group Corp. soared 7.9 percent after shares plunged 26 percent this year through Thursday. 

Dai-ichi Life Insurance Co. jumped 6.3 percent after a filing showed Effissimo Capital Management Pte now owns a 5.1 percent stake in the insurer. Musashi Seimitsu Industry Co., an autoparts maker, surged 9.1 percent, the most in more than five years, after Mitsubishi UFJ Morgan Stanley Securities Co. initiated coverage with an overweight rating on the stock.

Oversold Signal

The Topix’s 14-day relative strength index closed at 21.29 Thursday, below the level of 30 that some traders say indicates shares will rise. When the measure slid to 24.4 on Jan. 12, the Topix jumped 2.9 percent the next day.

Bearish bets on Tokyo’s stock exchange accounted for more than 40 percent of total trading value on Thursday. 

The Japanese gauges fell into a bear a bear market on Wednesday. The Nikkei 225 previously entered a bear market in June 2013, after plunging 20 percent in less than a month. The gauge soon rebounded, rallying 31 percent from its low on June 13, 2013, through the end of that year.

The MSCI All-Country World Index rose for a second day after falling within one percentage point of a bear market on Wednesday amid plunging energy prices, rising U.S. interest rates and concern over China’s ability to manage a transition to more sustainable growth.

China Regulation

Equities also rose in China after Vice President Li Yuanchao told Bloomberg News the government would boost regulation in an effort to avoid too much volatility in the nation’s stock markets, which were “not yet mature.”

European stocks jumped by the most in a month as ECB President Mario Draghi told reporters on Thursday that downside risks to the euro-area economy have increased since the year began, and the central bank may need to bolster its stimulus programs as soon as March amid rising concerns about the recovery. The bank kept interest rates unchanged.

E-mini futures on the Standard & Poor’s 500 Index added 0.8 percent after the underlying market gained 0.5 percent Thursday. Investors also are keeping close watch on progress in the U.S. economy to gauge the trajectory of interest rates before the Federal Reserve’s meeting next week. 

Expectations for a rate hike at the Fed’s January meeting have been low since December’s increase in borrowing costs. Now, those for March are falling, with traders trimming the chances to 22 percent from even odds at the end of last year.

The Bank of Japan also meets next week, with the Nikkei Asian Review reporting the central bank is considering steps to counter the hit to inflation from the slide in crude oil.

“With further hopes for policy coordination among the central banks, the market will be supported,” Juichi Wako, a senior strategist at Nomura Holdings Inc. in Tokyo, said by phone. “Things will still be volatile, but we’ll generally be rising.”

Oil rose for a second day to break back through $30 a barrel.

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