It is learned from the Intelligence Finance that the Japanese stock market experienced its worst day since 1987, with both the TOPIX index and the Nikkei 225 index falling into bear market territory. Against the backdrop of the soaring yen, the tightening of the Bank of Japan's monetary policy and concerns about the US economy, investors have been withdrawing funds in droves; The additional margin pressure forced retail investors to sell and accelerated the market decline. In this context, UBS Securities lowered its target level for the Japanese stock index by the end of the year. Nevertheless, many asset management companies still see a bullish outlook for the Japanese stock market.

Analysts analyze the sell-off in the Japanese stock market on Monday:

Sellers

Rina Oshimo, senior strategist at Okasan Securities, said the sell-off was driven by the closure of long positions and the participation of trend-following hedge funds. Due to panic selling in the market, valuation and fundamental strategies are not applicable in certain areas.

Takehiko Masuzawa, trading director of Phillip Securities, pointed out that futures participants such as CTAs are gathering and selling their closing positions and opening opposite positions.

Kyle Rodda, senior market analyst at Capital.Com, believes that the rapid fluctuation of the yen has brought downward pressure on the Japanese stock market, but it has also triggered the dismantling of a major arbitrage trade - investors borrowing yen to buy other assets, mainly US tech stocks, and increasing leverage.

Reasons for the sell-off: yen and Bank of Japan

Rafael Nemet-Nejat, senior portfolio manager at Jin Investment Management, said: "This is a massive deleveraging that is being triggered by the Bank of Japan's interest rate hike and the possibility of the Fed lowering interest rates in September, which has led to a significant closure of carry trades. Therefore, many trades betting on a weak yen and a soft landing have been forced to close positions. These fluctuations are extreme, especially in crowded long markets."

Tim Morse, an analyst at Asymmetric Advisors, pointed out: "All of this is driven by yen appreciation - the US dollar against the yen fell from 145 to 142, meaning that a further breakthrough in the technical level seems to be within reach."

Reasons for the sell-off 2: US economy

Jumpei Tanaka, strategist at Pictet Asset Management, said: "Last Friday, the US announced that the unemployment rate had risen to 4.3, triggering the 'Samuelson Rule' and causing concerns about a recession in the US economy, which had a negative impact on the Japanese stock market. Currently, the US economic surprise index is showing a negative (deteriorating) trend, and investors' concerns about the worsening of US economic indicators are increasing. In addition, the Jackson Hole conference will be held this month, and the Federal Open Market Committee meeting will be held next month."

Hideyuki Suzuki, general manager of SBI Securities, said:"The US employment statistics further increased the uncertainty of the US economy, coupled with the continuous appreciation of the yen, leading to a sharp decline in the market."

Outlook

After experiencing 'Black Monday' of Japanese stocks, UBS warned that the selling pressure of Japanese stocks is far from over, and investors should not rush to enter the market in the short term. Strategists at UBS, including Nozomi Moriya, said in a report that they have lowered their targets for the Japanese index due to the strength of the yen, which reflects new GDP and CPI forecasts. By the end of 2024, the target for the TOPIX index was lowered from 3,000 points to 2,800 points, while the target for the Nikkei 225 index was lowered from 42,000 points to 39,000 points. The target for the TOPIX index at the end of 2025 was lowered from 3,200 points to 3,000 points, and the target for the Nikkei 225 index was lowered from 44,000 points to 41,000 points. The target downgrade reflects changes in Bank of Japan monetary policy and trends in foreign exchange, among other factors.

"Despite this, James Salter, chief investment officer at Zennor Asset Management, believes:"Our short-term concerns will not affect our long-term optimism about Japan's capital allocation changes. We don't expect this to have a fundamental impact on Japan's competitiveness or profitability."

Hiroshi Namioka, chief strategist at T&D Asset Management, said:"Market volatility may make life difficult in the coming days, but a rebound may be possible later this week."

Rupal Agarwal, the Asia quant strategist at Sanford C.Bernstein, said:"We are in a cycle where bad news is bad news. Note that for Japan, we have been advising to focus on quality stocks and increase exposure to domestic stocks since the beginning of this year, so this sell-off doesn't change our bullish view. From a long-term perspective, we still have a positive outlook on Japan's structural issues."