The Blubber

Kelvin Tay, regional chief investment officer at UBS Global Wealth Management, compared entering the Japanese market right now to “catching a falling knife” during an appearance on CNBC's "Squawk Box Asia."

His remarks follow the Nikkei 225 and Topix indices extending their losses, with declines surpassing 12% and plunging into bear market territory. The Nikkei's 12.4% drop marked its worst day since the infamous "Black Monday" of 1987.

Tay explained, "The only reason the Japanese market has been performing well over the past two years is due to the very weak Japanese yen. Once the yen starts to strengthen, investors need to exit quickly, and I believe that’s what’s happening now."

The yen, which had weakened to a 38-year low of 161.99 against the U.S. dollar in June, began to recover ahead of the Bank of Japan's policy meeting. It surged sharply after the BOJ raised its benchmark interest rate to around 0.25% last week and reduced its purchases of Japanese government bonds.

Currently, the yen is trading at 144.82 against the dollar, its lowest level since January. A stronger yen puts pressure on Japanese stock markets, which are dominated by trading houses and export-oriented companies, as it diminishes their competitive edge.

BOJ Governor Kazuo Ueda had adopted a hawkish stance during his post-meeting press conference on July 31, stating that “if the economy and prices align with our projections, we will continue to raise interest rates,” according to Reuters. He also noted that there is “still quite some distance” before the policy rate reaches a neutral level that neither cools nor overheats the economy.