Lucknow Stock：Japan's headline index, Nikkei 225, saw an intense selling pressure on Monday as Tokyo's barometer crumbled nearly 15 per cent during the session.

Japan's headline index, Nikkei 225, saw an intense selling pressure on Monday as Tokyo's barometer crumbled nearly 15 per cent during the session. Japanese stocks confirmed a bear market as Asia-Pacific markets continued the sell-off from last week, with Nikkei crashing nearly 28 per cent from its 52-week high hit in mid-July 2024.

Contributing to the 5,000 points fall in Nikkei, stocks including Mitsui & Co, Kawasaki Kisen, Mitsubishi, Daikin Industries, Fujitsu, Kubota, Sumitomo and others tanked up to 23 per cent during the Monday's session. Japan's broader market index Topix was also down near 13 per cent, hovering around its 52-week lows.

Traders fretted about the impact of a stronger yen on Japanese companies after the Bank of Japan (BoJ) signalled further rate hikes could be on the way. A rising yen would hurt exporters and companies with overseas earningsLucknow Stock. In Monday trading, the yen also strengthened to its highest level against the dollar since January, and was last trading at 143.10.

A rapid appreciation in the Japanese currency has also forced many market participants to unwind the yen carry trade, a hugely popular trading strategy.  The so-called Yen carry trade has been in focus in the wake of the selloff in global shares.

A carry trade is a hugely popular trading strategy where an investor borrows from a country with low interest rates and a weaker currency and reinvests the money in assets of another country with a higher rate of return. It has been one of the biggest sources of flows in the global currency market.

The Bank of Japan's decision to raise interest rates has propelled the yen to its strongest level against the US dollar since March. This has triggered the unwinding of the yen carry trade, which involved borrowing cheaply in yen and investing in higher-yielding currencies or assets, said Vikram Chhabra, Senior Economist, 360 ONE Asset

"As a result, equities and other asset prices have become more vulnerable. Additionally, recent disappointing US jobs data has exacerbated the situation, leading to a global sell-off in equities. Investors should expect increased market volatility in the near term," he said.

The turbulence in the Japanese market led to collateral damage in equity indices across the globe and Indian stock markets were not behind. BSE Sensex crashed nearly 2,700 points to fall below 78,300 mark, while NSE's Nifty index dwindled about 825 points to break 23,900-levels. Fear gauge India VIX spiked more than 61.6 per cent during the session to 23.15-level.

However, the Japanese carry trade is not the sole reason for the markets' meltdown. The concerns of rising tension in the Middle East, jitters to rate cut expectations in the US, rich valuations of the Indian stocks, potential FIIs outflow and rising bond yields also led to the crash in the Indian stocks.

This rate cut expectations in the US are under threat with the fall in US job creation in July and the rise in US unemployment rate. Geopolitical tensions in the Middle East also are a contributing factor. Another significant factor is the unwinding of the Yen carry trade which is bleeding the Japanese market, said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

"Valuations in India, driven mainly by sustained liquidity flows, continue to be high particularly in the mid and smallcaps segments. The overvalued segments of the market like Defence and Railways are likely to come under pressureKolkata Wealth Management. Investors need not rush to buy in this correction. Wait for the market to stabilise," he advised.

On the other hand, some analysts believe that the recent correction was warranted for the Indian stock markets after a sharp run up and investors should consider the recent correction to buy the dips. Investors should accumulate the stock in a staggered manner amid this volatility, they suggest.

The recent fall in markets is a culmination of three major global factors including the yen carry trade unwinding, growing Middle East tensions and fears of a US recession going ahead, said Manish Chowdhury, Head of Research, StoxBox.Indore Stock

"Though nothing much has changed on the domestic front, we do expect the interplay of global factors to weigh on the overall market sentimentHyderabad Stocks. We recommend caution from a short-term perspective and advise investors to be on the sidelines until further clarity emerges on the changing global landscape," he said.Bangalore Wealth Management

This sell off is more of a short term volatility by way of profit booking and is no indicator of any long term panic mode set in the Indian equities, said Tanvi Kanchan, Head - UAE Business & Strategy, Anand Rathi Shares and Stock Brokers. "For investors looking at entering the equity market, a staggered entry during volatile periods can be considered," she suggested.

Given the prevailing bullish trend, it is unlikely that prices will remain low for an extended period. A recovery from these lower levels is a probable scenario, said Vishnu Kant Upadhyay, AVP, Research and Advisory at Master Capital Services

"Every market decline should be viewed as an opportunity to establish new long positions for long-term holding. The Nifty50 has major support in the 24,200-24,100 range, and prices are unlikely to fall below this zone, while the Sensex has significant support around 78,400, near the 55-day EMA," he said.

Varanasi Wealth Management