Oh the morning after . . . Yesterday’s market crash of Japan’s NIKKEI 225 (INDEXNIKKEI:NI225) was the worst since the 11 March 2011 triple disaster. Additionally, it was one of the worst drops in since 1990 (see chart below). Today, the Nikkei is surging and is up 2.4% as of 11:00PM EST. No official reason has been given for the rally today. More of the focus has been on what happened yesterday.

Japan Nikkei

Japan’s NIKKEI 225 (INDEXNIKKEI:NI225) drop explanations

Nicholas Smith points out of CLSA (and BAML as well), it was the selloff that so many on the sidelines had been expecting.  However, the shock was exogenous, not created in Japan, as the Chinese PMI was a disappointment. Meanwhile, rising bond yields, some argue, are not a sign that Japan’s QE is failing; rather, Japanese yields have been rising in line with other markets.

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CLSA notes further:

This looks like the selloff that so many on the sidelines have been waiting for. The Topix was undoubtedly overbought. The Chinese PMI was a disappointment, but it was followed after the close by above-consensus numbers from Europe and the US. Bond yields have risen less than in the US and in line with many other markets: this is not a sign that Japanese QE is not working.

The Chinese PMI was a disappointment; the rest were pleasing

The Topix was in positive territory till the Chinese PMI came out

The Chinese PMI was below consensus, down for the second month, and below the grow/shrink watershed at 50.

The global PMI was already looking in danger of breaking down in April. The European and US PMIs, however were significantly ahead of consensus.
The pause that refreshes for a market that was incandescent

A lot of underweight investors were on the sidelines looking for a pullback: for them, this is what they were waiting for.
Rising bond yields are not a sign that Bank of Japan’s QE is failing

The rise in bond yields is being blamed on the Bank of Japan and hamfisted QE: in fact, yields have been rising only in line with rising yields in most other markets.

Bond market volatility has been within normal limits.

Since FY00, bonds outstanding have doubled but interest costs are unchanged because old bonds have been refinanced at significantly lower yields.

Concentrate on asset plays, not exporters The Bank of Japan is executing at least in line with its aggressive plans.

Related- Kyle Bass: BOJ Didn’t Foresee ‘Rational Investor Paradox’

What the reason for the drop and surge is will likely be debated going forward. However, one thing is certain… Bar Kyle Bass, most hedge fund managers are feeling a lot better today about Japan. Kyle Bass had a terrific day yesterday, but today is probably a bit more gloomy for him.