Japan's benchmark Nikkei 225 accelerated its losses to plunge over 6 percent on Thursday in a vicious sell-off that took the index to levels not seen before the Bank of Japan launched its massive stimulus program on April 3.
Uncertainty over central banks rolling back stimulus saw dollar/yen drop below the key 95-handle, rising nearly 2 percent to plumb a new 10-week low. The Nikkei is now down over 21 percent from last month's five-and-a-half-year high of 15,942, placing the benchmark firmly back in bear market territory for the second time in less than a week.
(Read More: Yen Surges as Safe-Haven Bid Back in Play)
"In my personal opinion, this is deep consolidation phase. I would expect that that's going to continue for another 3-4 weeks but afterwards I do think earnings visibility in Japan is going to pull shares higher again," said Jesper Koll, managing director at JP Morgan Securities.
In response to the steep falls, Bank of Japan Governor Haruhiko Kuroda was quoted by the Nikkei business daily as saying that the Japanese economy is on a steady path to recovery and that financial markets will calm down over time.
Elsewhere in Asia, markets experienced a bout of heavy selling with the Shanghai Composite down over 3 percent after being closed since last week, Seoul shares falling to a new eight-week low and Australia's S&P ASX 200 hitting a fresh five-and-a-half-month low.
Emerging markets also extended losses as capital flows continue to exit local equities. Thailand's SET index and Philippine's benchmark index slumped over 5 percent each, extending losses from earlier this week.
Central Bank Jitters
Nagging worries about the Federal Reserve tapering its bond-buying program and disappointment from the Bank of Japan's policy inaction at its Tuesday meeting have roiled global equity markets in recent sessions, leading the Dow Jones Industrial Average to drop for a third session in a row on Wednesday.
"We are seeing the first signs of a lack of confidence in the ability of central banks to control the interest rates, to stimulate inflation, and real GDP [gross domestic product] growth rates," said Viktor Shvets, head of strategy research, Asia, at Macquarie.
Nikkei in Bear Market
Japan's benchmark index closed at a fresh ten-week low with experts attributing the sell-off to short-term traders taking money off the table, warning that a move below 12,000 would force the market into dangerous territory.
"This is not the time to stick your hand in and catch the falling knife. It's best to stay on the sidelines and wait and see what the July elections say," said David Poh, Regional Head of Asset Allocation at Societe Generale Private Banking.
(Read More: Is it Game Over for Japanese Equities?)
Exporters suffered with Hino Motors losing over 9 percent while fiber manufacturer Nitto Boseki fell 8.6 percent. A stronger yen diminishes the value of exporters' overseas earnings when repatriated.
Despite the steep losses, one investor told CNBC that he is positive on the market over the next 6-19 months and views the current sell-off as a buying opportunity. "On a 12-18 month basis, I would look to the market to be above 20,000," said Glen Wood, head of sales, Global, Mitsubishi UFJ Morgan Stanley Securities. That target is almost 60 percent higher from current levels.
Sydney Slips 0.6%
Australia's benchmark index fell further into correction territory, with the index down 11 percent from last month's high of 5,249.
The Australian dollar fell below the $0.95 handle against the greenback after initially popping to $0.9520 after an upside surprise on the jobs front. Data released on Thursday showed the nation added 1,100 jobs in May, a hefty gain compared to market expectations of a drop of 10,000.
Resources weighed on the broader index with Gindalbie Metals and rare earth miner Lynas leading losses by over 7 percent each. Oil and gas producer Linc Energy tanked 6.5 percent after Brent crude slipped towards $103 on demand worries.
Greater China Resumes Trade
The Shanghai Composite fell below its 200-day simple moving average of 2,188 as investors had a chance to react to last week's dismal economic data. Markets have been closed since last week for the Dragon Boat holiday.
Banks led the losses after data showed that weaker new loans were extended in May. Shanghai Pudong Development Bank skidded 3.5 percent while Hua Xia Bank fell 2.6 percent.
Weakness in the mainland spelled heavy losses for Hong Kong's Hang Seng Index, which fell below 21,000 to its lowest level since October 2011.
Kospi Below 1,900
South Korea's benchmark index tracked the global equity rout, weighed down by a 2 percent drop in shares of Samsung Electronics, the largest component on the Kospi index.
Exporters were unable to gain from the yen's rise with automakers Hyundai Motor and Kia Motors down over 2 percent each.
Sentiment was little changed after the Bank of Korea left interest rates steady at 2.5 percent at its policy meeting, a move widely expected by market players.
— By CNBC.com's Nyshka Chandran. Follow her on Twitter