After suffering its worst day in percentage terms since 1987, Japan’s Nikkei 225 notched one of its best days. + Tech stocks that got hammered on Monday rallied, with semiconductor manufacturing equipment maker Tokyo Electron up over 16%. + The yen, which had strengthened sharply on the unwinding of an investment strategy known as the carry trade, fell back to around 144.60 to the dollar.
The Japanese currency is trading at around 145 to the dollar, versus about 142 at its strongest point on Monday. The move suggests the unwinding of the investment strategy known as the carry trade might have run its course for now. The Bank of Japan raised its policy rate on July 31, which accelerated the rush by carry-trade investors to buy back yen.
The U.S. dollar rose Tuesday, reversing some of the recent losses as a degree of calm returned to the foreign exchange markets. The dollar has been hit hard of late by fears of a U.S. recession after a batch of weak readings on the labor market, which ramped up bets that the Federal Reserve will have to cut rates more than initially expected. Traders now expect 110 basis points of easing this year from the Fed, pricing in an 80% chance of a 50 bps cut in September, after having fully priced in a 50 bps cut on Monday.
Japan’s Nikkei Stock Average on Tuesday clawed back about three-quarters of the ground it lost Monday, rising 10.2% to close at 34675.46. + Japanese Prime Minister Fumio Kishida said, “It is important to judge the situation calmly,” and pointed to the first monthly rise in real wages in Japan in more than two years as a reason for optimism. It was the Nikkei’s best day in percentage terms since Oct. 14, 2008, in the middle of the global financial crisis, when the average gained more than 14%.
-- Most Asian currencies weakened slightly on Tuesday as the dollar steadied from a recent rout, with the Japanese yen falling from seven-month peaks.
The selloff in risky assets accelerated Monday, exacerbated by the unwind of crowded trades and lower liquidity during peak summer, according to investors and analysts. "We've got these massive moves that are creating more massive moves because people are in the wrong positions and they have to get out," said Peter Schaffrik, a macro strategist at RBC Capital Markets. Until recently, many investors were concentrated in the same trades, according to a July survey of fund managers by Bank of America.
The carry trade isn't unwound yet. Investors are rushing to close out one of the most popular investment strategies of recent years: making investments with borrowed Japanese yen. Many investors have been participating in the so-called carry trade.
The carry trade isn't unwound yet. Investors are rushing to close out one of the most popular investment strategies of recent years: making investments with borrowed Japanese yen. Many investors have been participating in the so-called carry trade.
- The U.S. dollar edged higher Wednesday, bouncing from recent weakness with a number of Fed officials set to speak. At 04:20 ET (08:20 GMT), the Dollar Index, which...
Japan’s Nikkei Stock Average closed down 12.4% on Monday, a historic fall triggered by disappointing U.S. jobs data and a further rise in the yen. The Nikkei's move was the biggest single-day percentage drop since it fell 14.9% in 1987 after the “Black Monday” crash on Wall Street. Nikkei Tumbles After Weak U.S. Jobs DataThe index’s drop followed a 5.8% fall on Friday.