Why does the Japanese stock market seem less volatile than the A-share and US stock markets? Is it my misconception?

Japanese Stock MarketStock Market VolatilityA-Share MarketUS Stock MarketMarket Misconception
Created At: 8/8/2025Updated At: 8/17/2025
Answer (1)

Hey there! That's a great question, and you're definitely not alone in feeling that way. I have to say, your feeling is largely not an illusion, especially considering that for a very long time, the Japanese stock market indeed had a reputation for being "tepid," with relatively low volatility.

Let's break down why you might feel this way from a few angles:

1. Who's Playing? – Completely Different Investor Structure

Think of it like this: In a vegetable market where it's mostly neighbors and elderly folks buying groceries (retail investors), news like "eggs are cheaper" might trigger a buying frenzy, while a rumor like "rain tomorrow" could scare everyone away. People come and go, leading to big price swings.

  • China's A-share Market: This fits the example above perfectly. The A-share market is a classic retail investor-dominated market, where individual investors account for a large portion of trading volume. What are retail investors like? They tend to chase rallies and sell in panics, trade emotionally, and love chasing news and concepts. This leads to boom-and-bust cycles and naturally higher volatility.
  • Japanese and US Stock Markets: These markets are more like being dominated by large supermarket chains and warehouse clubs (institutional investors). The main players are pension funds, insurance companies, and mutual funds – the "institutions." Their characteristics? Deep pockets, long-term perspective, and slower decision-making. They buy stocks based on long-term fundamental research into companies, not dumping everything at the first sign of trouble. They act like "ballast" for the market, smoothing out overall volatility.

2. An "Anchor" – The Strong Presence of the Bank of Japan

This is a very unique aspect of the Japanese market. You can think of the Bank of Japan (BOJ) as the largest, and openly acknowledged, "market maker" in the stock market.

For many years now, to stimulate the economy, the BOJ has been directly purchasing ETF funds (which you can think of as baskets of stocks) in the market. What does this mean?

  • It Provides a Floor During Downturns: Whenever the market experiences a significant drop, everyone expects the "central bank will step in." This "super buyer" entering the market effectively dampens panic and provides strong support. So, it's hard for the Nikkei to see prolonged, unchecked plunges.
  • It Doesn't Disrupt Uptrends: Its goal is market support, not speculation. So, its presence primarily reduces downside volatility, making the market's overall volatility curve smoother.

In contrast, the US Federal Reserve mainly influences markets through interest rate policy and doesn't directly buy stocks. While China's A-share market has a "national team" (state-backed funds), it typically only steps in to stabilize during extreme risks, unlike the BOJ which treats ETF buying as a routine operation.

3. The "Goods" in the Market are Different – Listed Company Composition

  • US Market: The "stars" of the US market are high-growth tech giants like Apple, Google, and Nvidia. These companies represent future potential, have high growth rates, but also high valuations. If their earnings slightly miss expectations, their stock prices can swing wildly. They hold significant weight in the indices, so when they tremble, the whole US market shakes.
  • Japanese Market: The Japanese market has a large number of traditional manufacturing, financial, and export-oriented companies like Toyota, Sony, and Mitsubishi. These are very mature, "established" companies with stable businesses. They might not have the same explosive growth potential, but they have solid fundamentals. This company structure makes the overall market "character" more stable and less prone to sharp surges or crashes.
  • China's A-share Market: Sector rotation in the A-share market is very fast, and policy heavily influences sectors. One day it's new energy, the next day it's liquor (baijiu), and the day after it might be AI. Hot sectors change frequently, with capital flowing rapidly between different sectors, which also amplifies overall market volatility.

However, a few important caveats:

  1. This doesn't mean the Japanese market is risk-free. Remember the late 1980s? The bubble and subsequent crash in the Japanese market had volatility levels that went down in history. The "low volatility" we're talking about now mainly refers to its performance after the bubble burst, during the "lost decades" and its recent recovery phase.
  2. "Low volatility" doesn't mean "no movement." Look recently – the Japanese market just hit a new all-time high! The gains and volatility during this bull run have been quite significant. The "low" volatility is relative – compared to the A-share market's frequent occurrences of massive numbers of stocks hitting daily limits (up or down), and the intense volatility driven by tech stocks in the US market.
  3. There might be some illusion involved too. Because we're typically exposed to more news and information about the A-share and US markets, we feel their ups and downs more acutely. The Japanese market gets relatively less attention. Unless there's major news, we might not notice its daily fluctuations, naturally making it seem "quieter."

To summarize:

Your feeling that the Japanese market has lower volatility is mainly due to: it's dominated by long-term institutions, has a powerful central bank providing a floor, and its listed companies are mostly stable, traditional businesses. These three factors combine to give the Japanese market a seemingly "milder temperament" compared to the A-share and US markets. So, your feeling is pretty spot on!

Created At: 08-08 21:51:31Updated At: 08-10 02:29:13