The U.S. Federal Reserve's latest survey of regional banks has offered fresh evidence of worsening business sentiment, clouding economic and earnings prospects.
The beige book survey has revived fears of a delayed U.S. economic recovery.
Futures on the U.S. federal funds rate indicate that the market is starting to discount the possibility of a half-point fall in the key short-term rate by the end of this year.
Against this backdrop, the Nasdaq composite index has fallen below 2,000.
With Fed policymakers already expected to decide on a quarter-point rate cut at their Aug. 21 meeting, such a decision would have only a limited impact on the stock market.
The 225-issue Nikkei average bottomed out on July 30 but is faced with strong resistance at around 12,500.
In light of the strong linkage between the Nikkei and the U.S. economy, downside risks should be felt again.
An increase in put options at 11,000 on the Nikkei since last week deserves attention.
With Japan's economic fundamentals offering little inspiration, the stock market is pinning hopes on the government's prompt introduction of support measures, including clarification of steps aimed at promoting the disposal of bad loans by banks, securities-related tax reforms, monetary easing steps and the early establishment of an organ to buy shares from banks.