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Macroscope | Japan stock shock shows volatility is back with a vengeance
- Markets are beginning to reflect and respond to a fast-growing sense of uncertainty and insecurity in the wider world
Reading Time:3 minutes
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What is going on? Japanese Prime Minister Fumio Kishida proclaims his “new capitalism”, Japanese investors pile into stocks, driving the Nikkei average up to record highs, only for the Tokyo market to collapse like a house of cards and then partially bounce back. Other major markets have traced similar trajectories, although not of the same magnitude.
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Tokyo’s sudden crash and equally sudden partial recovery speaks of a market support operation by the Bank of Japan (BOJ), which already held some 37 trillion yen (US$253 billion) of equity exchange-traded funds (ETFs) before the crash. This should not be mistaken for a true recovery.
As Reuters’ Jamie McGeever noted in a commentary this week, “day-to-day swings of this magnitude based on not a lot of fresh or major market-moving news are red flags. They’re typical of more protracted and volatile downturns, and many investors are adopting a cautious stance”.
Major markets – not least Wall Street – have been gyrating wildly. A simple case of midsummer market madness, perhaps? No, there is much more to it than that. Markets are beginning to reflect and respond to a fast-growing sense of uncertainty and insecurity in the wider world.
At the global level, this stems not from things such as shifting interest rates and inflation, though many analysts seem incapable of seeing beyond those. It reflects the growing risk of economic recessions, regional or global conflicts erupting, climate change, pandemics and many other threats.
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