Japan leads market rebound, but volatility keeps traders wary
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After days of relentless selling triggered by escalating global trade tensions, Asian markets staged a modest recovery on Tuesday, with Japan taking center stage. The Nikkei 225 surged 5.6%, outperforming regional peers and helping to stabilize broader investor sentiment. However, analysts caution that the bounce may be temporary, as volatility remains elevated and the macro picture continues to be clouded by uncertainty.
The rebound in Japanese equities coincided with news that U.S. Treasury Secretary Scott Bessent will spearhead trade negotiations with Tokyo. This development was interpreted by some as a potential sign of flexibility from Washington, which may be open to discussions despite President Donald Trump’s recent hardline rhetoric. The U.S. dollar slipped 0.5% against a basket of peers, while the yen gained 0.2% to trade around 147.53, further supported by safe-haven demand.
The broader MSCI Asia-Pacific index added 1.7%, largely on the strength of Japanese equities. Yet other markets remained under pressure. Taiwan’s benchmark dropped another 5% after a record loss on Monday, and Thailand’s SET index plunged nearly 6% in catch-up trading following a holiday. Indonesia’s market also suffered, falling 9% on its return from a week-long break.
Hong Kong’s Hang Seng rose 1.6% in a technical rebound following its steepest single-day drop since the 1997 Asian financial crisis. Mainland Chinese equities, supported by sovereign wealth fund buying, posted modest gains, with blue chips rising around 1%. Still, these moves are seen more as stabilization efforts than the beginning of a sustained recovery.
The bond market also reflected a cautious optimism. U.S. 10-year Treasury yields rose six basis points to 4.216%, following a 17 bps jump the previous day as investors began pricing out worst-case scenarios. Japanese government bond yields followed suit, with the 10-year JGB climbing 13 bps to 1.24%. Meanwhile, the VIX index — Wall Street’s volatility gauge — eased 7% but remained above 60, underscoring that market anxiety is far from resolved.
In currency markets, the euro jumped 0.7% to $1.0979, while sterling climbed 0.5% to $1.2789. Commodity markets also rebounded modestly. Brent crude futures rose 1.5% to $65.16 per barrel, while WTI added 1.6% to $61.66. Gold regained some ground, up 0.4% to $2,995 per ounce, though it remains below last week’s record high above $3,160. Bitcoin also bounced back by 1.2% to just under $80,000, after touching a five-month low.
Despite Tuesday’s gains, many analysts view this rebound as a possible bear market rally rather than a true inflection point. JPMorgan CEO Jamie Dimon’s recent warnings on U.S. economic headwinds and rising inflation, combined with contradictory signals from the Trump administration, have left markets searching for direction.
In Europe, futures for the STOXX 50 rose 2.2%, as EU ministers prepared to respond to U.S. tariffs with countermeasures while offering a “zero-for-zero” tariff proposal to avert a prolonged trade war. The European Commission’s strategy underscores that negotiations remain a possibility, but until progress materializes, traders are likely to remain defensive.
For now, the path forward hinges on headlines — any sign of a breakthrough in trade talks or further escalation could rapidly shift market dynamics. Investors should remain alert to intraday volatility, especially across rate-sensitive and trade-exposed sectors. The Nikkei’s surge provides short-term relief, but positioning for durability rather than reflex rallies may prove the more prudent strategy in the days ahead.
The rebound in Japanese equities coincided with news that U.S. Treasury Secretary Scott Bessent will spearhead trade negotiations with Tokyo. This development was interpreted by some as a potential sign of flexibility from Washington, which may be open to discussions despite President Donald Trump’s recent hardline rhetoric. The U.S. dollar slipped 0.5% against a basket of peers, while the yen gained 0.2% to trade around 147.53, further supported by safe-haven demand.
The broader MSCI Asia-Pacific index added 1.7%, largely on the strength of Japanese equities. Yet other markets remained under pressure. Taiwan’s benchmark dropped another 5% after a record loss on Monday, and Thailand’s SET index plunged nearly 6% in catch-up trading following a holiday. Indonesia’s market also suffered, falling 9% on its return from a week-long break.
Hong Kong’s Hang Seng rose 1.6% in a technical rebound following its steepest single-day drop since the 1997 Asian financial crisis. Mainland Chinese equities, supported by sovereign wealth fund buying, posted modest gains, with blue chips rising around 1%. Still, these moves are seen more as stabilization efforts than the beginning of a sustained recovery.
The bond market also reflected a cautious optimism. U.S. 10-year Treasury yields rose six basis points to 4.216%, following a 17 bps jump the previous day as investors began pricing out worst-case scenarios. Japanese government bond yields followed suit, with the 10-year JGB climbing 13 bps to 1.24%. Meanwhile, the VIX index — Wall Street’s volatility gauge — eased 7% but remained above 60, underscoring that market anxiety is far from resolved.
In currency markets, the euro jumped 0.7% to $1.0979, while sterling climbed 0.5% to $1.2789. Commodity markets also rebounded modestly. Brent crude futures rose 1.5% to $65.16 per barrel, while WTI added 1.6% to $61.66. Gold regained some ground, up 0.4% to $2,995 per ounce, though it remains below last week’s record high above $3,160. Bitcoin also bounced back by 1.2% to just under $80,000, after touching a five-month low.
Despite Tuesday’s gains, many analysts view this rebound as a possible bear market rally rather than a true inflection point. JPMorgan CEO Jamie Dimon’s recent warnings on U.S. economic headwinds and rising inflation, combined with contradictory signals from the Trump administration, have left markets searching for direction.
In Europe, futures for the STOXX 50 rose 2.2%, as EU ministers prepared to respond to U.S. tariffs with countermeasures while offering a “zero-for-zero” tariff proposal to avert a prolonged trade war. The European Commission’s strategy underscores that negotiations remain a possibility, but until progress materializes, traders are likely to remain defensive.
For now, the path forward hinges on headlines — any sign of a breakthrough in trade talks or further escalation could rapidly shift market dynamics. Investors should remain alert to intraday volatility, especially across rate-sensitive and trade-exposed sectors. The Nikkei’s surge provides short-term relief, but positioning for durability rather than reflex rallies may prove the more prudent strategy in the days ahead.