After experiencing a rare and drastic "crash" drop yesterday, the stock markets in the Asia-Pacific region are witnessing a remarkable rebound todayThe Nikkei 225 and TOPIX indices have surged by over 10% during trading, while South Korea's composite index and KOSDAQ both have risen by more than 5%.

In the Chinese A-shares market, the Shanghai Composite Index opened strong at 0.63%, with both the Shenzhen Component and the ChiNext Index climbing over 1%. By the time of the midday break, the market shows a bullish trend, with 4,491 stocks gaining and 700 stocks decliningAs for the Hong Kong stocks, the Hang Seng Index and the Hang Seng Tech Index have both risen by over 1% during trading.

Japan and South Korea's stock markets demonstrate an astonishing turnaround

Following the disastrous "Black Monday," Tuesday's early session in the Japanese and South Korean stock markets has seen a spectacular reversal.

When trading opened on August 6, the Nikkei 225 index rose sharply, expanding its gains to over 10%.

The driving force behind the Nikkei's strength can be traced back to shifts in the currency market

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At the time of reporting, the yen has shown weakness, with the dollar gaining over 1% against the yen, bouncing back above the 145 yen mark, after dipping below 142 yen earlier in the day, inching closer to Friday's closing levels.

Prior to the opening of the Japanese stock market, Nikkei 225 future contracts had surged by 8%, triggering a circuit breaker.

After the Japanese market opened, the Nikkei 225 index's gains continued to widen, with the Tokyo Stock Exchange's growth market's 250 index futures also temporarily halting trading due to the circuit breaker mechanism.

Simultaneously, South Korea's KOSDAQ futures soared, triggering the "SIDECAR" halting mechanism, pausing programmatic trading buy orders for five minutes.

On August 5, numerous global markets faced "Black Monday," with significant downturns across the Asia-Pacific region

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Among them, the Japanese and South Korean stock markets plummeted, with several indices triggering circuit breakersBoth the Nikkei 225 and TOPIX indices dropped over 12%, erasing their gains for the year.

The cause of this crash has been identified

In light of the significant declines in the Japanese and South Korean stock markets and fluctuations in global capital markets, analysts suggest that the primary factors include anticipations surrounding the Federal Reserve's interest rate cuts, concerns over a potential recession in the U.S., and the diminishing tide of yen-carry trades amidst yen appreciation.

On the news front, recent data from the U.S

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Department of Labor reveals that the number of new jobs added in July fell significantly short of market expectations, with the unemployment rate exceeding forecastsThe U.SDepartment of Commerce reported a 3.3% month-on-month decline in new orders for manufactured goods in June, compared to a 0.5% decrease in MayAdditionally, the Institute for Supply Management reported the U.Smanufacturing index for July at 46.8, down from 48.5 in June, moving further away from the critical threshold of 50. This weak labor and economic data has raised investor concerns about a recession, further dampening market confidence.

"What is genuinely tightening market nerves is the continuous appreciation of the yen," said Zhou Hao, chief economist at Guotai Junan InternationalHe mentioned that following the Bank of Japan's interest rate hike, the yen has crossed the crucial threshold of 150 to the dollar, marking a technical shift away from its long-term depreciation path.

Zhou claimed that the recent increase in the yen is somewhat atypical, as even with the Bank of Japan's interest rate hike, the interest differential between the yen and the dollar remains significant

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He highlighted that the notable yen appreciation is largely attributed to a substantial retreat in yen-carry trades that the market is now more inclined to accept.

Bruce Kirk, chief Japan equity strategist at Goldman Sachs commented that in light of the Bank of Japan’s anticipated continued rate hikes, "investors are skeptical that the Japanese economy can handle additional 25 or 50 basis point increases in policy rates, nor do they believe Japanese firms can profit under a dollar-yen exchange rate below 150." The dollar-yen exchange rate recently fell to around 142, marking its highest point since January.

Japanese stock market enters a fundamental turning point

Notably, aside from the short-term impact of "Black Monday," many analysts believe that the Japanese stock market was already heading toward a fundamental transformation.

Kirk indicated that the Japanese stock market's rebound is now in a "turning phase." He explained that the bull market over the past two years has been driven by three major factors: the depreciation of the yen benefiting blue-chip exporters and banks, expectations of normalization in the Bank of Japan’s monetary policy, and corporate governance reforms

"The rules of the game have definitely changed, especially regarding interest rates and currency, and this fundamental transformation is painfulWe believe that the 'Japan Special Valuation' narrative has not completely unraveled, but it is certainly evolving, accompanied by market volatility and the kind of aggressive sector rotation we have seen recently." He mentioned that due to various factors, including increased domestic demand in Japan and reduced vulnerability to currency fluctuations, investors have recently shown renewed interest in smaller Japanese companies, noting, "I believe investors are searching for areas that focus more on domestic demand, which has really brought Japanese small and mid-cap stocks back into the spotlight."

Regarding how long this round of corrections in the Japanese stock market may last and how severe they might be, Kirk noted that over the past two years, Japanese stocks have undergone about seven momentum corrections, each generally seeing a drop of approximately 7% to 8% from peak to trough, typically requiring about two months to recover

He suggested that the current and upcoming movements in the Japanese stock market may reflect those observed around December 2022 when the Bank of Japan first adjusted its yield curve policy.

Hideyuki Ishiguro, chief strategist at Nomura Asset Management, remarked, "It seems the panic selling might have ended, allowing investors to begin repurchasing stocksNonetheless, with rising anxiety in global markets, today’s price movements could resemble a rollercoaster."

Citi Group strategist Ryota Sakagami, in a research report, stated, "We believe that the Japanese stock market has already factored in moderate U.Srecessions and a dollar-yen rate of 140, limiting further downside

However, we expect the transition to recovery will take time, with risk-averse trades dominating for the time being."

Musk lashes out at the Federal Reserve

On Monday, Eastern Time, major U.Sstock indices collectively saw sharp declinesAt the close, the Dow Jones Industrial Average fell by 1,033.99 points, or 2.60%, ending at 38,703.27; the Nasdaq dropped 576.08 points, or 3.43%, closing at 16,200.08; while the S&P 500 Index decreased by 160.23 points, or 3.00%, settling at 5,186.33.

Large technology stocks displayed weak performance, with Apple down 4.82%, Amazon dropping 4.1%, Netflix falling 2.46%, Google decreasing 4.45%, Meta down 2.54%, and Microsoft declining by 3.27%. Moreover, the majority of chip stocks faltered, banking stocks uniformly plummeted, and energy stocks collectively dropped.

Reports have emerged indicating that some bond traders are betting that the Federal Reserve may ease monetary policy in the next meeting to avert a recession

Traders project about a 60% chance that the Federal Reserve may cut rates by 25 basis points within a week.

"The Federal Reserve needs to lower interest rates," tweeted Elon Musk on August 4. "It is foolish for them not to do so."

On August 5, Mary Daly, a voting member of the Federal Open Market Committee and president of the San Francisco Fed, expressed her openness to the idea of rate cuts in the imminent September meetingThe Federal Reserve intends to take all necessary measures to achieve its dual mandate"If we react to just one data point, we almost always get it wrongInflation is easing, but it remains above our 2% target

Fed policy rates need adjustments, but when and by how much will depend on dataIt's currently undetermined whether the labor market is slowing or experiencing real weakness."

In international oil markets, the price of West Texas Intermediate crude oil for September delivery fell by 57 cents, closing at $72.94 per barrel, a decline of 0.79%. Meanwhile, the October delivery of Brent crude oil dropped by 51 cents, closing at $76.30 per barrel, down 0.66%.

In precious metals, at the time of reporting, COMEX gold futures dropped 0.8% to $2,450 per ounce, while COMEX silver futures fell 3.83% to $27.3 per ounce.