Traders in Tokyo braced for slaughter Tuesday, but while blood flowed at the opening bell, stocks reversed their course and survived the day as the walking wounded.

At one point in the morning the Nikkei 225 average was down more than 600 points. It recovered in the afternoon to close at 20,585.31, down a mere 134.98 points, or 0.65 percent. The Topix, which covers all first-section issues on the Tokyo Stock Exchange, shed 6.65 points, or 0.44 percent, to end at 1499.23.

Stocks elsewhere in Asia similarly pared losses.

The signs overnight were not good. Wall Street suffered its worst day this year Monday. And the United States sharply escalated its feud with China when it designated Beijing a currency manipulator for allowing the yuan to slide.

But China on Tuesday took steps to stabilize the currency, injecting relief onto trading floors across the region.

Analysts expect more volatility ahead. They warn Japanese companies to expect further fallout if Washington and Beijing are unable to break their deadlock.

Takahisa Odaka, an equity market strategist at Nomura Securities Co., said labeling China a manipulator is a symbolic move, but it is also part of a multifaceted effort to apply pressure on Beijing, already the recipient of crushing U.S. tariffs.

“U.S. congressional representatives are still highly critical of the tariffs,” Odaka said. “But rather than attacking China solely through tariffs, I think the U.S. is employing a variety of ways to win both a battle for technological supremacy and to improve its trade deficit with China.”

That technological hegemony encompasses a broad swath of the digital realm, from 5G cellphone networks to online services such as Twitter of the U.S. and WeChat of China.

For now, Odaka expects the markets to remain twitchy. And he warns there may be collateral costs to Japanese companies in their quarterly results.

But some predict relief for harried stock investors in the short term.

“Stocks tanked rapidly, but the market is not all about going down,” said Chihiro Ota, a general manager of investment research at SMBC Nikko Securities Inc. “We are seeing signs of a rebound.”

At its lowest point Tuesday, the Nikkei was down more than 1,400 points from Friday. From such a low, “it would not be unusual to see a rebound scraping back 500 or 600 points by the end of this week,” Ota said. “It appears that the tide has ebbed considerably already, so I imagine it is coming back in now.”

But Ota echoed a warning that Japanese companies may suffer as the feud continues between Washington and Beijing.

“The flow of goods has begun to slow down,” he said. “What concerns me the most is the dispute’s effects on the performance of Japanese companies, especially the ones that operate globally.”

Tuesday’s sell-off eased after China fixed its currency at a stronger level than expected. Unlike many developed economies, China keeps its currency within a range designated by the central bank every morning.

The announcement of the daily reference rate, above the psychologically important level of 7 yuan per dollar, sent the currency upward and stocks in pursuit.

Depressing the yuan enables China to soften the blow from the tariffs and export its goods more cheaply. At the same time, it incurs the risk of capital flight and makes it harder for borrowers to pay off debt.

The S&P 500 futures erased losses and the yen retreated after climbing on haven demand. The yen, a perceived safe haven in times of market turmoil and political tensions, touched a seven-month high of 105.52 per dollar before dropping back to 106.70 in volatile trade.

And yet the MSCI Asia Pacific Index was still down almost 1 percent for the day, bringing the sell-off over the past week to a total of about 6 percent.

Beijing on Monday went ahead with breaking the key 7 yuan threshold for the first time in 11 years, spiting U.S. President Donald Trump after he announced additional 10 percent tariffs on $300 billion worth of Chinese goods to start Sept. 1.

Incensed, the U.S. Treasury Department on Tuesday declared China a “currency manipulator,” accusing it of deliberately weakening the yuan to gain an advantage in export trade.

On Monday the Dow Jones Industrial Average plummeted more than 767 points, or 3 percent, while the Nasdaq slumped 278 points, or 3.5 percent. The S&P 500 was off 87 points, or 3 percent.

The market wariness reflects deep unease that a trade conflict between the world’s largest and second-largest economies may spin out of control.

On Monday, Goldman Sachs economists said in a report they “no longer expect” to see a trade deal between Washington and Beijing before the 2020 U.S. presidential election. They cited the fact that policymakers on both sides have adopted a similar hard-line approach.

The Trump administration has been frustrated by a lack of progress in trade negotiations. It accuses Beijing of reneging on a commitment to buy more U.S. agricultural products such as soy beans.

Three rounds of tariffs are currently in place, affecting around $250 billion of goods.

On Monday, Larry Summers, a former economic adviser to U.S. President Barack Obama, spoke for probably a multitude of economists: “We may well be at the most dangerous financial moment since the 2009 Financial Crisis with current developments between the US and China,” he wrote in a tweet.

Information from Bloomberg and Reuters added