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From Staff Reports
Asian shares were pounded Friday in the wake of continued turmoil in the global credit markets. But then they soared today (Monday) in a powerful rebound, fueled by the U.S. central bank's interest-rate action on Friday.
In Japan, shares suffered their worst single-day decline in seven years – with heavy selling in such exporters as Canon Inc. and Honda Motor Co. leading the way – as the yen rallied against other key global currencies.
The Nikkei 225 Index today jumped 458.80 points, or 2.25%, to close at 15,732.48. On Friday, the Nikkei notched its biggest fall in seven years, falling 874.81 points, or 5.4%, to close at 15,273.68 – a 52-week low. Japan's broader Topix index declined by an even-steeper 5.6%, closing at 1,480.39.
There's been a long spell of weakness in the value of the Japanese currency because of the so-called "yen carry trade," a transaction in which investors borrow low-yielding yen to buy higher-yielding currencies. Currency experts say that the yen's rebound coincides with a rebound in the yen's value. On Friday, for instance, the dollar fell 0.8% to 112.77 yen to the dollar. The euro fell 0.9% to 151.31 yen to the euro.
Hirokazu Yuihama, a regional strategist at Daiwa Institute of Research in Hong Kong, told MarketWatch that "nobody expected such a fast appreciation. That caused a huge sell-off in export-related stocks such as autos and high-tech."
Money Morning continues to see Japan as one of the better markets to invest in [For more information, see our special investment report, "The Three Best Investments In Asia Today"].
International investment banker, Deutsche Bank AG, sent out a short note to its trading clients said the performance in Japan was "dire." The reason: Japanese stocks have lagged other Asian indexes so far this year, and because U.S. shares recovered overnight.
According to MarketWatch, Deutsche Bank told clients that "as the carry unwind sees the dollar-yen approach the key 110 level, swap desks are being forced to sell dollar-yen into a falling market to hedge existing structures, which could only mean further yen strength to come." The heavy selling in Japan touched off a sell-off in Hong Kong, where the Hang Seng Index fell to a low of 19,386.72 – though it subsequently reversed course and headed north, finally ending at 20,387.13, a decline of 1.4%. "A lot of institutional investors are offloading their positions," Peter Pak, vice president at BOCI Research in Hong Kong, told MarketWatch. Traders, in general, "are still quite nervous and may stay on the sidelines. We expect the turnover (in Hong Kong) to drop sharply."
On other Asia exchanges, South Korea's Kospi Index gained 5.7% today, after plunging 3.2% Friday. Australia's S&P/ASX 200 Index today enjoyed its biggest one-day gain in a decade, soaring 261.6 points, or 4.6%, to close at 5,932.6, after dropping 0.7% Friday. China's Shanghai Composite Index rose 5.3% today, after dropping 2.3% on Friday. New Zealand's NSX 59 rose 2.3% today, after dropping 1.6% Friday. And Taiwan's Weighted Index rose 5.3% today, after a dropping 1.4% Friday.