Japanese stocks made a comeback on Tuesday following Monday's significant drop, alleviating concerns of a major global equity market meltdown. After a 12 per cent plunge on Monday, marking its worst day since 1987, the Topix bounced back over eight per cent on Tuesday.
The Nikkei also saw a 9.1 per cent rise after losing more than 12 per cent the previous day.
Leading a wider Asian rally, Japanese stocks were followed by South Korea's Kopsi, which rose nearly four per cent, and Taiwan's stock market, which also recovered from its worst day in history.
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Deutsche Bank's Jim Reid commented on the situation, stating: "it's a turbocharged turnaround Tuesday in Asia,".
Looking forward to European markets, FTSE 100 futures are up around 1.2 per cent, with markets in Paris and Frankfurt also expected to open higher, as reported by .
Global equity markets had a challenging day yesterday due to fears that the US Federal Reserve may have delayed interest rate cuts, potentially putting the world's largest economy at risk of recession.
The S&P 500 dropped 4.25 per cent upon opening, while the Nasdaq fell 6.4 per cent, although both stabilised slightly due to strong survey data and reassuring comments from Fed officials.
Tech stocks took a particular hit due to weaker than expected results from several major tech companies last week. Some analysts have warned that this sell-off could signify the long-awaited bursting of the AI bubble.
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Uncertainty surrounding the yen carry trade is contributing to market volatility. This strategy, which involves borrowing in yen to invest in higher-yielding assets globally, has become less profitable following the Bank of Japan's recent interest rate hike, prompting investors to pull out of riskier positions.
BMI, a subsidiary of Fitch Ratings, commented that the Bank of Japan's move resulted in "a sharp unwind of the yen carry trade, which added downside pressure on risk assets which were already selling off."
Despite some recovery, City Index's senior market analyst Matt Simpson cautioned against premature optimism. "The Nikkei's enjoying a decent retracement against Monday's plunge, as comments from the Fed's Daly and a stronger-than-expected ISM services report soothed fears of a panic Fed cut next week," he observed.
However, Simpson also noted, "But this is not exactly a risk-on rally. And we are not yet sure if this is just a breather between water-boardings or there is more pain to follow."