, Chief Global Market Strategist Kristina Hooper of Invesco has made a statement about the sell-off in the American and Japanese markets. Invesco has indicated that due to economic growth being below trend and continuing to slow down, their strategic indicators have shifted towards a defensive stance. However, the market is overly concerned about the possibility of a recession in the United States. While the Federal Reserve's decision not to cut interest rates in July did increase the risk of an economic recession, the job market remains relatively strong. It is almost certain that the Federal Reserve will cut interest rates in September, and it is highly likely that they will cut rates again in November and December. Currently, the World Interest Rate Probabilities estimates a 75% chance of a 50 basis point rate cut in September. In July, the United States added 114,000 non-farm payroll jobs, which was significantly lower than the expected 175,000. The previous two months' non-farm payroll numbers were revised downwards by 29,000. The unemployment rate increased from 4.1% to 4.3%. The market is concerned that the Federal Reserve has waited too long to start cutting interest rates, resulting in a policy mistake. Bond yields have significantly dropped, and the market is starting to anticipate a 50 basis point rate cut from the Federal Reserve in September. Invesco's base case is that it is not too late for the Federal Reserve to start cutting interest rates now. If the Federal Reserve starts easing monetary policy in September, the United States may be able to avoid an economic recession. Economic growth in the United States could pick up again by the end of 2024 or early 2025. Considering the shift in strategic indicators towards a more cautious stance, Invesco will remain cautious in the short term. However, their medium-term outlook is driven by policy responses, normalization of bond yields, and the resilience of the US economy. Therefore, in the long run, as in the past, they lean towards overweighting risk assets, as loose monetary cycles are generally not related to economic recessions. The recent drop in the Japanese stock market may be a "healthy breather" after a recent investment frenzy. Regarding the sell-off in the Japanese market, Invesco points out that the recent sharp drop in the Nikkei Stock Average over the past few days seems to be due to several factors. The appreciation of the yen is one of them, and the Bank of Japan has already hinted at a tightening of monetary policy. With the central bank believing that the possibility of inflation staying above 2% in the long term is increasing, and being more optimistic about future economic activity in Japan, there may be more rate hikes within the year. It is believed that there are still some closing trades or profit-taking sales going on. A rate hike by the Bank of Japan is a key event, and many expect the yen to further appreciate. In recent years, over half of the total sales of Japan's large stocks have been settled in US dollars or other foreign currencies. Therefore, investors' concerns are not without merit. It is worth noting that Japanese bank and financial stocks have dropped significantly. Typically, a rate hike by the Bank of Japan would benefit related industries (as net interest margins improve). Japanese bank stocks have already risen by over 40% this year (before the recent sharp drop), and many have prepared for the actions of the Bank of Japan. This may also be a market concern that if interest rates rise too quickly, their holdings of financial company bonds may face accounting losses. Invesco believes that the recent drop in Japanese stocks may be a "healthy breather" after a recent investment frenzy. Furthermore, considering that the Japanese economy still has long-term structural positives, they believe that the selling pressure is only temporary. Wage growth in Japan is far exceeding recent historical levels, which is driving domestic demand growth. On the yen front, considering that the Federal Reserve may cut interest rates multiple times before the end of 2024, it is believed that the yen may continue to appreciate against the dollar. Looking ahead, the movement of the USD/JPY exchange rate may be more dependent on the monetary policy path of the Federal Reserve rather than the incremental actions of Japanese policymakers. The historical correlation between the USD/JPY exchange rate and the Nikkei Stock Average has been quite high. However, it is not advisable to completely pull out of the Japanese stock market or take too tactical a stance on the yen, as this could mean missing out on potential structural positives in Japan in the coming years.