Asian markets were under pressure on Wednesday morning, following a relatively flat finish on Wall Street overnight.
Down Under, the S&P/ASX 200 lost 1.31 per cent, extended Tuesday's 2.88 per cent drop, with the market weighed by the energy, materialsand financial sectors, which were down 1.97, 1.87, and 1.05 respectively.
In Japan, the Nikkei 225 initially halted its losing run to open 0.38 per cent higher, but quickly erased gains to trade down 1.13 per cent. Yesterday, the index plunged 5.4 per cent to close at 16,085.44, falling for five of the past six sessions.
Markets in Singapore and Malaysia re-open today after being shut Monday and Tuesday for the Lunar New Year holidays. Hong Kong and South Korea will resume trading on Thursday. Mainland Chinese markets and Taiwan will be closed for the week.
Evan Lucas, market strategist at spreadbetter IG, cautioned the reopen could be painful and create a "bottleneck trading scenario."
"The prospect of Asian markets overshooting on their reopening after Lunar New Year is an increasing risk," he wrote in a morning note.
Focus on the dollar-yen
In recent sessions, the dollar-yen pair has come under pressure and briefly on Tuesday, the pair fell below the 115-level to a November 2014 low. It prompted Japan's Finance Minister Taro Aso to say Tuesday that the yen's moves were "rough" and that he was watching it closely, according to Reuters.
Kathy Lien, managing director of FX Strategy for BK Asset Management said in a note on Wednesday that many investors were wondering if the Bank of Japan (BOJ) would intervene to halt the slide in the yen. The dollar-yen pair has fallen 700 pips in the past seven trading days and Lien said that was not because the market was optimistic on Japan's economy.
"The yen is a funding currency and it is falling hard as investors bail out of risky trades," she wrote. "[The] yen strength comes at significant costs for Japan because as an export dependent nation, many Japanese industries live and die by the value of the yen."
A stronger yen hurts corporate profitability, which in turn hurts the Japanese economy, Lien said.
On Wednesday, the pair traded 0.14 per cent lower at 114.97 after market open. Major exporters including Toyota, Nissan, Honda and Sony traded mixed, between down 1.06 per cent and up 1.17 per cent.
Banks under pressure
Banking stocks in Australia were swept up in the banking sell-off in Europe and the US, with Australia's so-called Big Four banks - NAB, Commonwealth Bank of Australia, ANZ and Westpac - trading mixed between down 2.41 and up 0.22 per cent.
Leading the pack was CBA, which traded up as much as 2.62 per cent before retracing most of the gains; the company reported a 4 per cent gain in fiscal first-half cash profit, in line with expectations. Cash profit for six months ended December 31 rose to A$4.80 billion (S$4.72 billion) compared with A$4.62 billion a year earlier.
On Tuesday, the Big Four dropped between 3.96 and 4.78 per cent.
"This is interesting considering Australian banks are not as exposed to liquidity issues as their US and European counterparts," said Lucas. "The reliance on the long end of the bond curve and wholesale funding is substantially lower for Australian banks - their retail exposure actually isolates them from funding risk."
He also noted that Australian banks had declined 15.2 per cent year-to-date and almost 30 per cent since an April 2015 high.
In Japan, banking stocks continued their downward slide, with shares of Mitsubishi UFJ down 3.71 per cent, SMFG down 2.06 per cent and Mizuho Financial shedding 1.82 per cent, as concerns remain over their profitability in a negative interest rate environment.
Toward the end of January, the BOJ surprised markets by introducing a negative interest rate policy.
Volatility in oil
Oil prices were up in Asian trading hours, with US crude futures gaining 1.79 per cent to $28.43 a barrel, after dropping 4.18 per cent during US hours. Global benchmark Brent, which had not yet began trading, fell $2.04, or 6.17 per cent, to $30.85 during overnight trade.
Energy plays across Asia traded mixed, with Santos down 4.41 per cent, Woodside Petroleum dropping 2.17 per cent and Inpex shedding 0.24 per cent. Tokyo-based Cosmo Energy was up 8.52 per cent.
Overnight, oil was weighed by data from the American Petroleum Institute (API) that showed US crude stockpiles rose by 2.4 million barrels to 503.4 million in the week to Feb. 5.
Major indexes on Wall Street finished nearly flat, with the Dow Jones industrial average falling 12.67 points, or 0.08 per cent, to 16,014.38. The S&P 500 fell 1.23 points, or 0.07 per cent, to 1,852.21, while the Nasdaq composite slid 14.99 points, or 0.35 per cent, to 4,268.76.