Nikkei Skids 3.8% After Abe Fires 'Third Arrow'

In another volatile afternoon session, the Nikkei tumbled 3.8 percent to a new two-month low on Wednesday while the yen inched higher after Prime Minister Shinzo Abe's third "Abenomics" arrow failed to impress investors.

In his speech, Abe outlined measures such as setting up special economic zones to attract investment and raising incomes by 3 percent annually but failed to addressreforms surrounding the labor market and corporate taxes, which resulted in a late-afternoon sell-off.

"The comments made by Abe today were not really a game changer and disappointed a market which seems to have been positioned for a USD/JPY and Nikkei rally," wrote Stan Shamu, market strategist, IG in a note.

(Read More: Japan Fires 'Third Arrow,' Execution Now Key)

Elsewhere in the region, Australia's S&P ASX 200 index hit a five-month closing low, Seoul's Kospi hit a three-week low and the Shanghai Composite closed just above a two-and-a-half-week low.

Nikkei Hits Lows

Electric power stocks suffered the brunt of the sell-off with Tokyo Electric Power closing down 16 percent and Kansai Electric Power falling 9 percent after Abe didn't provide details on the re-activation of Japan's nuclear plants.

Financials also tanked. NKSJ Holdings, Daiwa Securities and Nomura lost 7 percent each. The moves in Japan's benchmark index suggest that a degree of caution has set in about the success of Japan's economic policies, analysts say.

"They [Japanese government] are drip feeding this news very slowly, hoping not to spook the market. As central banks typically do, they tend to over-promise and under-deliver," said Nick Maroutsous, founder and managing director at Kapstream Capital.

(Watch Now: Forget Abenomics, This Has Japan Cheering)

Shares of Fast Retailing slipped 9.5 percent despite reporting an 11 percent rise in same-store sales at its Uniqlo clothing stores for May.

Australia Down 1.2%

Resource stocks dragged on the benchmark with oil producers Horizon Oil and Maverick down between 5 to 6 percent while gold miners Newcrest and Alacer slipped 5 percent each.

The benchmark hit its lowest levels since January after GDP figures showed that the local economy grew 0.6 percent in the first quarter, compared to market expectations of 0.8 percent.

"The economy is likely to require more help going forward as the mining boom continues to fade. Both in the form of lower interest rates from the RBA [Reserve Bank of Australia] and via a further fall in the value of the Australian dollar," said Shane Oliver, chief economist at AMP Capital in a note.

"Its just a pity these numbers weren't released before the RBA made its decision yesterday!" he added.

The Australian dollar reversed all of the previous day's gains as it fell to $0.9617 against the greenback, down from a nine-day high of $0.9792 hit earlier this week.

(Read More: The Australian Dollar Just Can't Catch a Break )

Shanghai Off Lows

The index touched its lowest levels since May 17 but managed to close off those levels in last-minute trade. Sentiment was dampened after HSBC's purchasing manger's index (PMI) for the services sector showed May's pace of growth was little changed from the previous month.

Shares of the mainland's largest real-estate developer, China Vanke fell as much as 1 percent after announcing a 32 percent rise in May property sales.

Banking stocks like China Construction Bank lost 0.2 percent after the 21st Century Business Herald reported that China's "Big Four" lenders extended fewer new yuan loans in May.

Kospi Hits Lows

The benchmark index lost 1 percent as major exporter stocks lost ground as the yen resumed it's pace of declines. Hyundai Motor fell over 2 percent, and LG Electronics dropped over 3 percent

Shares of Samsung Electronics lost over 1 percent after the U.S. International Trade Commission said on Tuesday that it found Apple's products in violation of a Samsung patent and issued a limited ban on them.

(Read More: Citi Bets Big on This Asian Market Laggard )

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