The FSA published the English version of "FSA Analytical Notes (2025.1) vol.1".
full text summary (publication: February 4, 2025)
As financial institutions’ business environments and profit structures change, it is important to understand economic and market trends based on data, and to accurately grasp the business conditions of individual financial institutions and also the resilience and vulnerabilities of the financial system as a whole. From this perspective, the FSA has been focusing on the utilization of granular data, such as transaction-level bank loan data and financial data on individual corporations. Some case examples of data analyses using such granular data are published as a series of reports titled “FSA Analytical Notes.”
This issue contains “Analysis of Japanese Stock Market Turbulence in Early August 2024.” It is notable in that it uses granular order/transaction level data to understand market conditions, while also taking into account information gathered from market participants and considerations based on macroeconomic and financial statistics.
This paper presents a detailed analysis of the sharp swings that occurred in the Japanese stock market on August 5, 2024. With the use of granular order/transaction level data of the Nikkei 225 Futures, the FSA has developed several indicators to evaluate market supply, demand and liquidity conditions, including dominance by buyers/sellers, concentration by specific entities in transactions, price impact per contract amount and liquidity around the best quote.
Closely following the year-to-date (until early August) and August 5 intraday movements of these indicators, the followings were suggested. On a daily basis from mid-July to early August, excessive imbalances were not observed but the market liquidity was markedly declining, making prices more susceptible to fluctuations. Furthermore, on an intraday basis focusing on August 5, market liquidity subsided rapidly toward the afternoon session. At these hours, take orders were found to be concentrated on the seller side. Combined, they may have caused rapid market turbulence.
The use of granular data has provided a new insight into the background and mechanism of the market turbulence on August 5, 2024, compared to previous literature that has been based mainly on the views of market participants or macro-level aggregated statistics. This is a novelty of this paper. On the other hand, there is one important caveat. The analysis is obliged to focus on the Japanese stock market. While other domestic and overseas markets, including bond, foreign exchange and derivatives, should be ideally analyzed all together given their close interconnectedness, it was not possible due predominantly to the lack of data availability.
Evaluating the impact of market fluctuations on financial stability is an important issue on the regulatory agenda. The FSA will continue to analyze the mechanism of sharp market turbulence and its impact on financial stability by enhancing analytical capabilities and expanding the scope of its analyses.
Enhancing the use of data in financial supervision and policy-making is a medium- to long-term agenda. The FSA will continue to build its data analysis capabilities and data infrastructure.
* Unless otherwise noted, the figures and tables in this report were prepared by the FSA.
