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 earnings. 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.

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.