Market Anxiety Reflected in the "Fear Index"www.tradingview.com
Market Anxiety Reflected in the "Fear Index": Understanding the Nikkei Volatility Index
The Nikkei Stock Average experienced significant volatility on August 7th in the Tokyo stock market. Although it initially plunged over 900 points at the opening, it quickly recovered.
One factor behind the sharp drop in Japanese stocks was the hawkish remarks made by Bank of Japan Governor Kazuo Ueda during the Monetary Policy Meeting. However, at a financial and economic symposium held in Hakodate, Hokkaido, Deputy Governor Uchida stated, "We will not raise interest rates under unstable financial market conditions." He also mentioned, "For the time being, we believe it is necessary to firmly continue monetary easing at the current level," easing market concerns about further rate hikes.
While the stock market is being swayed by the remarks of government and Bank of Japan officials, an analysis of the Nikkei Volatility Index, also known as the "fear index," revealed that it surpassed the warning level, reaching 45.63 on July 23rd. This indicates a highly unstable state in the stock market. Being able to anticipate rapid changes in volatility can make it easier to manage funds and trades, reducing the risk of being overwhelmed by market fluctuations.
The warning level is not only exceeded when the index surpasses 40 but also when it falls below 20, requiring market participants to exercise caution. When the index dips below 20, a situation akin to the "calm before the storm" can arise, making market movements difficult to predict. For instance, the usual correlation between the number of advancing and declining stocks and overall market movements may break down under these circumstances.
Although turbulent markets like this are rare, market participants must still be prepared for unforeseen events.
