If the index (presumably the Nikkei, similar to the S&P 500) drops 3% in a single day, the stock exchange will stop all trading for a period of time.
This gives people the chance to cool off and not sell blindly in a panic, hopefully returning behavior to normal.
It also gives people the chance to intercept automated systems (stop-loss orders, things like that) if it's clear that e.g. it's a "flash crash" and not a more legitimate (for lack of a better term) drop.
It's a circuit breaker in the same way that a regular one works: It stops all activity (all trading) in order to protect the system (the economy) in the event that too much current is flowing through (too many sell orders, or too much volatility in the market).
This gives people the chance to cool off and not sell blindly in a panic, hopefully returning behavior to normal.
It also gives people the chance to intercept automated systems (stop-loss orders, things like that) if it's clear that e.g. it's a "flash crash" and not a more legitimate (for lack of a better term) drop.
It's a circuit breaker in the same way that a regular one works: It stops all activity (all trading) in order to protect the system (the economy) in the event that too much current is flowing through (too many sell orders, or too much volatility in the market).