Japanese stocks fell amid heightened volatility after the Topix index posted its biggest gain in more than seven years on Monday.

The Topix slipped 0.8 percent to 1,280.85 as of 9:07 a.m. in Tokyo, paring Monday’s 8 percent rebound. The Nikkei 225 Stock Average lost 1.1 percent to 15,841.23. The yen traded at 114.37 per dollar after weakening for two days amid declining demand for haven assets. Stocks in Europe followed Japan’s lead from Monday, posting their biggest two-day gain in more than four years, while U.S. markets were closed for a holiday.

For many market watchers, Japan’s rebound on Monday was overdue as technical signals have been flashing that stocks were oversold for a month. With the Topix down 23 percent for the year through Friday, shares were trading at book value. The last time valuations were that low was the beginning of Prime Minister Shinzo Abe’s administration, when stocks were beginning a rally that would see the index double over the next three years.

The Topix has swung more than 3 percentage points intraday in each of the past five sessions, twice closing with drops of more than 5 percent. Ten-day volatility for the Topix is at the highest level since the March 2011 earthquake.

Source : Bloomberg