Japanese shares rally after biggest sell-off since 1987 Black Monday crash

Japanese stocks rebounded sharply from the previous session's searing sell-off and double-digit losses as Federal Reserve comments and data gave investors pause in their concerns over equity valuations and a possible US recession.

The benchmark Nikkei's rally, after the market's biggest single day rout since the 1987 Black Monday crash, came as the yen reversed its gains, indicating the carnage in yen-funded global carry trades too was easing.

In a turbulent day of trading, the Nikkei closed up 10.2 per cent at 34,675.46, after plunging 12.4 per cent on Monday, leaving investors feeling whip-lashed. The index finished up 3,217.04 points, notching its largest ever single-day point gains. It was also the Nikkei's biggest daily percentage rise since October 2008.

The broader Topix climbed 9.3 per cent to 2,434.21.

Investors had been shaken by last week's plunge in global stock markets, US recession risks, and worries investments funded by a cheap yen were being unwound, triggering a sell-off in Japanese equities on Monday.

Traders said they now appeared to be reconsidering the severity of their initial response, buying back shares on the dip.

"Fundamentally, nothing significant has changed for the Japanese economy. It is the unwinding of the carry trade driving a lot of the momentum sells," said Ray Sharma-Ong, head of multi-asset investment solutions for Southeast Asia at abrdn.

The Nikkei rally helped lift other Asian stock markets. Overnight, safe-haven US yields too had risen from lows in a sign the panic was abating.

But uncertainties remained, with analysts pointing to the possibility of more volatile market moves in the near-term.