The Nikkei has had a slow start to the year, but enjoyed a better end to the week by recording a strong rise today (February 7th).
It rose by 2.2 per cent over the course of the session to move away from the four-month low it had plunged to as a result of a series of losses since the turn of the year.
After adding more than 50 per cent to its value during the course of 2013, the new year has been a bad one for the Nikkei, which has been hurt by the decision of the US Federal Reserve to begin winding down its quantitative easing scheme.
Investors therefore started taking their profits out of the market, fearing a collapse as the US would no longer be pumping as much money into the economy, which has led to a nosedive for the Nikkei in the last few weeks.
The dollar's improvement is bad news for stocks on the Nikkei because it increases optimism and risk appetite, which in turn pushes investors away from safe-haven assets.
But today's 2.2 per cent rise represents a recovery of sorts for the Nikkei, which will be hoping it can get back on a more even keel after a poor first month or so of the new year. Today's 2.2 per cent rise was the best performance in a day for the Nikkei since January 29th.
The Topix was also higher on a good day of trading for the main Asian stock markets, with the broader index slightly outperforming the Nikkei by recording a 2.3 per cent rise for the session.
Kazuyuki Terao, Tokyo-based chief investment officer at Allianz Japan, told Bloomberg that the Nikkei has suffered from a "skittish" marketplace in the last few weeks. He added: "The options market shows the fear that’s spreading among market participants, with demand for puts being strong because you don’t see solid, positive catalysts in the near term."
The Nikkei had hit a six-year high towards the end of last year, but that peak proved to be a turning point for the index, which has been dropping by alarming amounts in recent weeks.
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