Japanese markets look set for another rocky day, with stock futures pointing to a lower open in Tokyo after a rapid retreat in US shares. 

The yen is marginally stronger Thursday after dropping 1.6% against the dollar Wednesday and government bond traders are on alert ahead of a sale for the 30-year maturity, with concerns that demand may be weak.

A weak Treasury auction in the US spurred concerns that volatile market conditions will continue. In Japan, there are still question marks over the path for rate hikes. Traders are awaiting a summary of opinions this morning from the Bank of Japan’s meeting last week.    

CME futures on the Nikkei 225 Stock Average traded at 34,380 as of 7:22am in Tokyo, compared with the gauge’s close of 35,089.62 on Wednesday. 

“The Nikkei 225 will start lower, following the overnight Nikkei futures lower,” said Takashi Ito, a senior strategist at Nomura Securities, adding that the currency market has calmed after comments from BOJ deputy governor Shinichi Uchida. “If we assume that the exchange rate will remain calm during the day, the market may narrow losses. Favorable stock prices are likely to be seen mainly in stocks with good earnings results.”

Both the Nikkei 225 and the Topix have recovered almost half of their losses since the end of July, when the BOJ raised its benchmark interest rate and unveiled plans to reduce its bond purchases. The benchmarks are now down about 15% from their records reached last month, after sliding into a bear market on Aug 5 when losses exceeded 20%.

The Nikkei’s rally over the past two days has helped cool implied volatility, which hit its highest level since 2008 at the start of the week. 

Technical charts suggest that Japan’s stock market may be approaching a bottom. The Nikkei on Tuesday formed a candlestick whose body was located within the range of the previous day’s, generating a so-called harami pattern that indicates a reversal during a downtrend.

  - Bloomberg