Market gradually stabilizes after the panic at the start of the week, but aftereffects linger

This week began with a historically significant panic in the markets. The turmoil was triggered by Bank of Japan Governor Ueda’s remarks hinting at the possibility of additional rate hikes, coupled with concerns about a slowing U.S. economy following weaker-than-expected employment data. This led to a sudden reversal of the accumulated bullish trends in equities and the weakening yen, resulting in a sharp decline in the Nikkei and a rapid drop in the yen to the 141 range. Subsequently, there was a swift rebound, pushing market volatility to extreme levels.

The situation was calmed by Vice Governor Uchida of the Bank of Japan, who stated that "interest rates would not be raised during times of market instability." Additionally, U.S. economic data also contributed to market stabilization. The ISM Non-Manufacturing PMI unexpectedly improved, and a decrease in initial jobless claims brightened the mood in U.S. equity markets. Comments from U.S. financial authorities also helped to temper the market’s overreactions, reducing extreme scenarios such as emergency rate cuts in the U.S.

However, the market's overreaction has not completely subsided, with USD/JPY’s one-week volatility remaining elevated at around 18%. The VIX Index has also rapidly decreased to the 23 range, but with the U.S. consumer price index (CPI) report scheduled for next week, it’s still too early to feel reassured.

Looking ahead, the latter half of August will see the Jackson Hole Symposium, amid a summer vacation mood that may lead to thin trading. Therefore, the aftereffects of this market upheaval are expected to persist for some time.

Upcoming Market Developments

In the overseas markets, Canada’s July employment data is set to be released, but the reaction is expected to be limited to the Canadian dollar. There are no major speeches scheduled from key financial officials.

Be Cautious of Risk-Off Movements

Although Iran has not yet taken any action, the potential for an attack on Israel remains, which could lead to a stronger risk-off movement heading into the weekend. In light of this, I have just moved to short USD/JPY.