Tokyo's Nikkei logs 7.7% jump, its biggest gain since October 2008

On Wednesday Japanese stocks surged with the Nikkei 225 Stock Average logging the sharpest advance since the aftermath of the 2008 Lehman Brothers Holdings Inc. collapse, amid speculation a selloff that pushed valuations to an 11-month low was overdone.

The Nikkei 225 surged 7.7 percent to 18,770.51 at the close in Tokyo, its biggest gain since October 2008, to reverse losses on Tuesday that wiped out the gauge’s 2015 advance.

The broader Topix index jumped 6.4 percent to 1,507.37, the most since March 2011.

Japanese equities experienced the world’s second-steepest drop through Tuesday since China’s surprising yuan devaluation last month, with Shanghai’s equity index the only one that traded worse.

In Topix’s 33 industry groups, brokers and insurers led the advance. Nomura Holdings Inc. soared 8.7 percent. Fast Retailing Co. jumped 10 percent to be the biggest boost to the Nikkei 225. Fuji Heavy Industries Ltd. surged 9.7 percent after the Nikkei newspaper reported the maker of Subaru cars is considering a dividend increase. Murata Manufacturing Co. rose 9.1 percent, leading Apple Inc. suppliers higher ahead of the unveiling of new iPhone and iPad models.

The index lost 16 percent from from an August peak through Tuesday as worries over China’s economic outlook roiled markets in Tokyo. 

On Tuesday, short-selling accounted for 41.2 percent of trades on the Tokyo’s exchange Tuesday, close to a record of 41.6 percent reached last week.

Hedge funds that shorted Japanese index futures Tuesday afternoon pushed Japan shares higher Wednesday as they closed out positions, Yoshihisa Okamoto, Tokyo-based head of equity research at Mizuho Asset Management, said to Bloomberg.

On Wednesday the yen weakened for a third day trading at 120.54 per dollar.

On August 24, the Japanese currency touched an seven-month high versus the dollar, the same week that foreigners fled Japanese equities at the fastest pace in at least a decade.

Short-selling has accounted for more than 40 percent of trading on the Tokyo Stock Exchange since Sept. 1, the highest proportion since the exchange began keeping daily records in 2008.

Tetsuo Seshimo, a portfolio manager at Saison Asset Management Co. in Tokyo, said that today market players see the reversal. “For now, it’s all up to what happens in China,” he said adding that in his opinion, the Shanghai Composite may not fall further.

The Shanghai Composite index, the benchmark Chinese stock measure, climbed for a second day Wednesday, adding as much as 2.7 percent. Gains were led by small-company shares amid optimism the government will succeed in shoring up equities after a $5 trillion rout.

Beijing will launch stronger fiscal policy to boost its economy, the finance ministry said in a statement posted on its website Tuesday.