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Japanese stocks rose on Friday, benefiting from an overnight rally on Wall Street and bringing an optimistic end to one of the most turbulent weeks in the history of the Tokyo market.

The broad Topix index rose about 1.5 percent on Friday, as did the narrower Nikkei 225 and the broader Asia-Pacific. The yen, whose rapid rise played a central role in the plunge in Tokyo stocks on Monday after a rate hike by the Bank of Japan, was relatively unchanged at about 147.3 yen against the dollar.

U.S. stocks posted their biggest daily gain since November 2022 on Thursday as a decline in U.S. jobless claims helped allay fears of an impending economic slowdown.

Concerns about the U.S. economy remain the overwhelming driver of sentiment, traders said. A week earlier, a rather negative jobs report stoked recession fears and helped trigger the massive, record-breaking sell-off in Tokyo on Monday that sent Japan’s major stock indexes tumbling 12 percent.

On Tuesday, brokers managed to convince investors that the sell-off was greatly exaggerated, and stocks recovered, posting their biggest one-day gain since 2008. By Friday, the Topix had recovered sufficiently, closing the week down just 1.5 percent.

Strong corporate earnings, share buybacks and better corporate governance have restored confidence in the Japanese market after Monday’s shocking sell-off, said Naoya Fuji, equity strategist at Nomura.

“If market conditions continue to recover, we must be careful that the BoJ does not resume its restrictive stance,” he said, referring to last week’s interest rate hike.

On Thursday, the benchmark S&P 500 rose 2.3 percent, finishing with its best day in nearly 21 months, while the tech-heavy Nasdaq Composite rose 2.9 percent – its biggest one-day gain since February. The rally helped offset some of the losses incurred by this week’s sharp sell-off.

Indices across the rest of Asia largely followed suit, with Hong Kong’s Hang Seng index up 2 percent on Friday morning, Korea’s Kospi climbing 1.5 percent and Taiwan’s TWSE gaining 3 percent, fueled by a rally in Asian semiconductor stocks led by chipmaker TSMC.

The price increases follow data showing that the number of new jobless claims in the US – which is considered an indicator of layoffs – fell to its lowest level in a month.

“It was last week’s jobs report that sent markets into a tailspin,” said Kristina Hooper, chief global development strategist at Invesco. Therefore, “it was logical that it was a point on the jobs market that calmed markets” this week.

Figures from the US Department of Labor on Thursday showed a seasonally adjusted 233,000 initial jobless claims for the week ending August 3. This is a decline from the previous week’s upwardly revised figure of 250,000 and is below economists’ forecasts of 240,000.

In contrast, last week’s employment report showed that the world’s largest economy added just 114,000 jobs in July, far below the consensus forecast of 175,000. That sent stocks sharply lower in volatile trading on Friday and Monday and sparked a sharp rise in Treasuries as investors increased bets that the Federal Reserve would soon have to cut interest rates.

The Vix index, which indicates the expected turbulence on the US stock market and is considered Wall Street’s “fear barometer”, briefly exceeded the 60 mark on Monday and was thus well above its long-term average of around 20. It then fell again.

This volatility index was around 24 on Thursday, but despite the daily gains, the S&P was still around 2.3 percent below its closing price of the previous week.

For Tim Murray, multi-asset strategist at T Rowe Price, the unemployment report was “a big positive surprise after we’ve seen a whole series of negative surprises.”

Hooper of Invesco pointed to an “ongoing healing process – but with the caveat that markets will be nervous because nothing has changed at the Fed. They will not make any rate cuts before the September meeting.”

“I think it will take some time for the markets to normalize, but we have to ask ourselves what triggered this sell-off, and I think it was irrational,” she added. “I don’t think it tells us we’re in for a major recession.”

Until recently, stock markets had performed particularly strongly, driven by hopes of a “soft landing” in which the Fed would succeed in reducing inflation without triggering a recession, and by enthusiasm for companies that rely on artificial intelligence.

Murray noted that chipmaker Nvidia’s second-quarter results will be released later this month. Those numbers “always include insights into the broader AI infrastructure complex,” he noted. “That could be something that really boosts the market.”