Japan's Nikkei tumbled after the government moved to delay a sales-tax hike for more than two years, bucking mostly higher markets around the region.
The Nikkei 225 closed 2.32 percent, or 393.18 points lower at 16,562.55, extending Wednesday's losses of 1.62 percent.
The Japanese yen strengthened against the dollar, trading at 109.1 at 1:18 p.m. HK/SIN time, compared with levels above 111 yen on Tuesday after Japan's Prime Minister Shinzo Abe announced a delay of the consumption tax hike until 2019 because of growing softness in the economy. A strong yen is generally a negative for Japanese stocks.
"This is not the first time for the consumption tax hike to be pushed back," DBS said in a note Thursday. "The second delay this time may have increased investors' concerns about economic uncertainties and skepticism about Abenomics," as Prime Minister Abe's economic reform program is called.
There are other concerns: "The postponement of the tax hike raises doubts over the sustainability of Japan's public debt," DBS noted. Japan's government debt exceeds 200 percent of its gross domestic product (GDP).
Analysts are also concerned that by lessening the chances of an economic slowdown, the move may put the kibosh on further Bank of Japan (BOJ) easing.
"Many are pointing to the fact that the proposed two-and-a-half year delay to the introduction of a 10 percent tax hike creates less of a need for further stimulus from the Bank of Japan at their mid-June meeting. But this had arguably already been priced into the currency over the past week," said Angus Nicholson, market analyst at IG, in a Thursday note.
"Global concerns around China may have also prompted renewed buying of the Japanese yen as a safe-haven asset," he added.