The Nikkei This Week
A perfect storm of factors including weak China data, confusion over Ben Bernanke's comments, surging Japanese bond yields and a strengthening yen contributed to the moves, analysts said.
"It doesn't matter the asset class, traders are out to play today in a big way, with the Nikkei trading in a 997 point or 6 percent range! It's been an incredible move, and anyone wanting to see a full-scale liquidation of a hugely over crowded trade will use this as textbook," said Chris Weston, market strategist at IG in a note.
10-year Japanese government bond (JGB) yields jumped as high as 1.002 percent, their highest level in a year, as debt markets globally sold off on comments from the Federal Reserve chief overnight that fueled worries about an early unwinding of the central bank's asset-buying program.
As a result, Japanese banking stocks were sold-off across the board with Shinsei Bank leading losses by 14 percent.
(Read More: Japan Bond Yields Spike – 10-Year Now at 1%)
"Japanese banks sit on a huge amount of government bonds and if yields are moving up too quickly, the asset quality of the banks is coming under pressure and you've got a negative impact on the economy," Weston said.
China PMI Weighs
HSBC's latest China's flash PMI slipped below the boom-and-bust level of 50 for the first time in seven months and drove the rest of Asia's equity markets to fresh lows.
(Read More: China's Economic Outlook Just Keeps Getting Worse)
"It does increase the chances of a sequential slowdown in the second quarter GDP. Simply put, domestic demand this time wasn't strong enough to counter the impact of weak external demand," said Donna Kwok, greater China economist at HSBC.
Australia Closes Down 2%
China is Australia's top consumer of raw materials so any dip in the mainland's economic activity hurts local miners. Rio Tinto fell 2 percent and Mount Gibson lost 5 percent.
China At Lows
Mainland stocks widened losses to close at a new one-week low as weakness seeped in from financials after a report revealed that Beijing may remove the floor for interest rates by 2014, a move that could hurt interest margins.
Kospi Drops 1%
The benchmark index closed at a one-week low. Like the rest of its Asian peers, the index has experienced a volatile week, having touched a seven-week high on Wednesday.
Top department store Lotte Shopping fell 1.5 percent after data revealed that sales fell in April from the previous year.
— By CNBC.com's Nyshka Chandran. Follow her on Twitter