Nikkei Falls Over 5% in Steep Afternoon Sell-Off

Japan's benchmark index skidded below the 14,000 mark to a one-month low on Thursday, weighed down by a strengthening yen and volatile Japanese government bond yields (JGBs). The session brought the benchmark's total losses to 14 percent since last Thursday's plunge.

Investors engaged in heavy profit-taking after the yen hit 100.5 per dollar, its highest levels since May 10. Real estate stocks were amid the worst hit with Tokyo Tatemono down 10 percent.

Yields on the benchmark 10-year note hit 0.89 percent in late Asian trade after rising as high as 0.91 percent in the morning session as hesitation about price swings capped large-scale buying.

Japanese Economy Minister Akira Amari responded to the stock market fall by saying that investors should not overreact to such declines and repeated that economic policies would be pursued without anxiety in regard to recent stock market volatility.

"We are all looking at the Nikkei right now and this 5 percent drop is a shock," said Desmond Chua, a markets analyst at CMC Markets in Singapore.

"You could say it's brought on by the stronger yen, but it's also about the U.S. data coming out tonight (Thursday) and nervousness ahead of that," he added.

Stocks Oversold?

A look at the technical momentum of major indices show that stocks are approaching oversold territory. According to the Relative Strength Index (RSI), a reading of 70 signals overvaluation while one of 30 indicates undervaluation.

The Nikkei currently stands at 40 compared to 82 last Wednesday (the day before its 7 percent plunge) while Australia's benchmark index is at 32, from 62 early last week.

The rest of Asia's stock indices retreated as fears that the U.S. Federal Reserve could soon taper its asset-purchasing program continued to hurt sentiment.

Australia's S&P ASX 200 index tumbled 1 percent to a seven-week low and Seoul's Kospi pared gains to buck below the 2,000 mark after trading in positive territory throughout the session. The Shanghai Composite continued its range bound trend at the 2,315 level.

Shanghai Down 0.3%

Pork stocks were in focus after meat producer Shanghui International announced a near $5 billion acquisition of America's Smithfield Foods.

Henan Shuanghui jumped 8 percent while Dakang Farming added 6 percent.

(Read More: China's Grab of US Hogs Stokes Interest on Hill )

Australia Lower

Resource stocks took a hit following a sharp drop in spot iron ore prices to a seven-month low as the International Monetary Fund downgraded China's growth expectations. The mainland is the world's largest consumer of the commodity.

Fortescue Metals slumped 6.5 percent, while global miners BHP Billiton and Rio Tinto fell over 1.5 percent each.

First-quarter business capital expenditure figures showed more Australian companies are scaling back investment plans as the resources boom slows. Analysts say the poor data will boost chances for a rate cut at next week's Reserve Bank of Australia (RBA) meeting but others argue to the contrary.

(Read More: More Rate Cuts inAustralia? Here's Why Not)

"A rate cut is unlikely as the drop in the Australian dollar will help ease financial conditions allowing the RBA to wait to examine further data before cutting rates again sometime in the third quarter of 2013," said Mitul Kotecha, head of global markets research for Asia, Credit Agricole, in a note.

The Australian dollar moved off a one-and-a-half-year low against the greenback to $.096.

Kospi Pares Gains

South Korean shares gave up its previous two-month high as the Nikkei index accelerated its pace of losses in late afternoon trade.

Exporters rallied with tech heavyweight Samsung Electronics jumping over 2 percent. The yen's appreciation gives domestic exporters a greater competitive advantage as it increases the value of their repatriated earnings.

Shares of Korea Electric Power Corp (KEPCO) rallied 1 percent following a 5 percent loss on Wednesday after news surfaced that several of its nuclear reactors were shut down over safety concerns.

Also capping heavy losses on the benchmark Kospi index was upbeat economic data. The nation's industrial output for April rose for the first time in four months, data showed on Thursday,

— By CNBC.com's Nyshka Chandran. Follow her on Twitter @NyshkaCNBC