Last night's awe-full plunge in the Nikkei 225 may have come as a shock to many but it was right on cue if one believes in the past as a guide to the future. As ForexLive notes [4], the striking correlation between the current rampage in the Japanese stock market and that of 1987 is stunning. In 1987, the index had a remarkably smooth 89% rally that began in early November, lasted 186 days, and was followed by a 9.1% correction. Currently, the Nikkei 225 has had a remarkably smooth 85% rally that began in late October and has lasted 191 days culminating with last night's 9% correction. If past continues to be prologue, last night's wipe out should be entirely forgiven within three days and promptly forgotten (as a transitory blip). If, however, this time really is different, well...
[5]
One thing seems clear, for better or worse, a new volatility regime may have just begun in Japanese stocks - just as it did 6 weeks ago in Japanese bonds...
(h/t @ForexLive)