Japan's Nikkei average fell 2.7 percent on Wednesday, marking its worst day in nearly a month as a stronger yen deepened worries about the longer-term prospects for Japan's economy and the technical outlook darkened.
The dollar slid against the Japanese currency after the Federal Reserve announced plans to boost a flagging U.S. economy by reinvesting money from maturing mortgage bonds in government debt.
The U.S. central bank, which left benchmark overnight interest rates steady in a range of zero to 0.25 percent, also renewed its pledge to keep rates low for an extended period, as widely expected.
Market players said pessimism was fed by a perceived contrast between a pro-active Fed and a passive Bank of Japan (BOJ), which kept interest rates steady and held off on new policy steps on Tuesday.
"For a country in deflation to have their currency strengthen like this is a worry," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.
"This inaction on the BOJ's part raises questions about whether they would really intervene to stem the yen's rise, for example. This is a concern, especially compared to the sense of urgency you get from the Fed."
The benchmark Nikkei lost 258.20 points to 9,292.85 for its biggest one-day percentage fall since July 16. The broader Topix lost 2.4 percent to 834.45.
"Investors are selling on worries about the impact of a strong yen on corporate earnings," said Masaru Hamasaki, a senior strategist at Toyota Asset Management.
"Although earnings reports at home have been pretty solid, concerns about the future are taking centre stage. A bearish mood like this isn't something that will disappear in a few weeks."
The Nikkei tumbled below its 25-day moving average, now at 9,520, which is considered a proxy for one month and is widely watched by Japanese investors. It had served as support since late July.
The next support stands at 9,250, where there are a large number of call options, analysts said, adding that market moves could remain volatile ahead of Friday, the settlement date for Nikkei options.
Below that, the Nikkei's next targets lie around 9,091, a low hit in July, and 9,076, a low posted in November 2009.
Charts suggested a downward move may lie ahead, with the Nikkei's MACD, a measure of market momentum, marking a bearish cross. Its slow stochastic, a measure of how oversold the Nikkei is and whether it is in a short-term up or drown trend, steepened its fall towards oversold territory.
Market players said short-term investors such as hedge funds and individual day traders appeared to be selling, while institutional investors were largely absent due to summer holidays.
DOLLAR NEAR 15-YEAR LOW
The dollar hovered within sight of a 15-year low versus the yen, slipping 0.3 percent to 85.28 yen and edging down towards the 84.82 yen trough hit last November. A drop below this would take the greenback to a 15-year low.
Amid broad selling, shares of exporters such as Honda Motor Co were hit particularly hard due to the yen's strength.
Many Japanese exporters have set their currency rate assumptions around 90 yen per dollar for the financial year to next March, although Honda cut its assumption to 87 yen from 90 yen. A stronger yen eats into exporter profits when repatriated.
Honda skidded 3.3 percent to 2,779 yen, Canon Inc lost 3.3 percent to 3,545 yen and Sony Corp shed 2.8 percent to 2,606 yen.
Shares of Pacific Metals Co tumbled 7.5 percent to 615 yen after the producer of ferronickel cut its annual sales and profit forecasts on Tuesday, saying the price of nickel was lower than its initial expectations.
Matsumotokiyoshi Holdings plunged 11.4 percent to 1,674 yen. It reported a quarterly net loss after the close on Tuesday, citing rising labour costs and a special charge related to store closures.
The drug store operator swung to a net loss of 525 million yen in its April-June first quarter from a profit of 2.2 billion yen a year earlier. The firm stuck to its earnings forecasts.
Trade picked up slightly, although it remained thin, with 1.58 billion shares changings hands on the Tokyo exchange's first section. It hit the lowest volume since late December on Monday at 1.25 billion.
Declining shares outnumbered advancing ones by 22 to 1.
