The Japanese stock market witnessed another day of volatility after falling more than 7 percent yesterday. The severe price swings kept the Asian markets on the edge. Nikkei 225 Index closed 0.9 percent higher to 14,612.45 after falling more than 500 points in the last trading session.

During today’s active trading, the index twitched back and forth in the 1000-point range.

Japanese stocks

Japanese Stock Gains

In terms of volume, a total of 5.89 billion shares changed hands, the fifth highest volume in the history of Nikkei. But it was below yesterday’s record of 7.66 billion shares. At the close of morning session, Nikkei was up 2.7 percent as traders started piling back the heavily sold stocks in the previous session.

However, as soon as the afternoon session started, the sell off began which pulled the index down by 3.5 percent within hours. Finally, Nikkei 225 Index closed the session with 0.9 percent in gains. Analysts and economists scrambled to figure out why the markets have fluctuated to such a degree. The Bank of Japan governor Haruhiko Kuroda said that the central bank has no targets for the level of yen and stock prices, so the central bank won’t comment on day-to-day movements.

Hedge Funds & Short Term Investors

Traders said short-term investors and hedge funds played a key role. They said that hedge funds that have earlier taken long positions in Nikkei futures and short position on the yen are now doing the opposite. The Nikkei’s unexpected decline on Thursday was attributed to a rise in 10-year bond yields to above 1 percent for the first time since June 2012.

The spike in bond yields was due to the Federal Reserve’s indication that it pay back its stimulus program over the next few months. Another cause of worry for investors was a slowdown in China’s manufacturing activity.

The heavy sell-off reminds economists that Japan remains vulnerable as Shinzo Abe and BOJ try to end the two decade long deflation through massive stimulus and reform programs. Japanese government is already overburdened with heavy debts.