Nikkei loses 2%
The Nikkei index at the Tokyo Stock Exchange and the broader Topix index were among the hardest-hit in Asia, down 2 percent ahead of an extended weekend. Markets in Japan will be shuttered until next Wednesday.
With dollar-yen ticking down at 119.70, exporters traded on the back foot. Blue-chip names Toyota Motor and Canon eased nearly 2 percent each, while Panasonic slumped 2.2 percent.
Financials endured particularly heavy selling, with Sumitomo Mitsui Financial Group and Mitsubishi UFJ Financial Group tanking more than 3 percent each. Nomura Holdings also receded 2.9 percent.
Meanwhile, the Bank of Japan (BOJ) policymakers agreed that emerging economies had suffered from weak growth but were likely to improve from a somewhat long-term perspective, minutes from the central bank's policy meeting held earlier this week showed. The BOJ kept monetary policy steady on Tuesday, in line with expectations.
Read MoreAs it happened: Asia responds to Fed inaction
China markets higher
China's Shanghai Composite index edged up 0.4 percent, thanks to strength among developers after data from the National Bureau of Statistics showed average new home prices in China rose for the fourth month in a row in August. However for the week, the Shanghai bourse is down 3.2 percent.
Gemdale led gains in the sector with a rise of 1.4 percent, while China Vanke and Poly Real Estate notched up 0.2 and 0.5 percent respectively.
Heavyweight component PetroChina dropped 0.8 percent, while banking stocks turned lower in the afternoon session with Industrial and Commercial Bank of China (ICBC) and Bank of China widening losses to 1.3 and 0.8 percent respectively.
Among other indexes, the benchmark CSI300 Index and the smaller Shenzhen Composite closed up 0.4 and 1.2 percent respectively.
In Hong Kong, property names which are extremely sensitive to the interest rate environment outperformed the broader Hang Seng index which inched up 0.3 percent. CK Property surged 4.7 percent, while Henderson Land Development and Sun Hung Kai Properties charged up more than 3 percent each.
According to CMB International Securities' Daniel So, the Fed's decision to hold fire for now will likely give Hong Kong markets a "short-term boost."
"It will give Hong Kong stocks a short-term boost because it helps [to] limit the housing bubble... I believe investors can now [go] overweight interest rate-sensitive stocks like Hong Kong property," the Hong Kong-based strategist told CNBC Asia's "Squawk Box."