Japan's Nikkei 225 dropped 2.78% to 27,818.62, and the Topix index fell 1.97% to 1,947.46.
The Japanese yen earlier hovered around the 145-mark, its weakest levels since September 1998 – before strengthening after a report said the Bank of Japan conducted a "rate check."
MSCI's broadest index of Asia-Pacific shares outside Japan fell 2.26%.
The U.S. 2-year Treasury yield also reached 3.79%, the highest level since 2007. The Dow Jones Industrial Average lost 1,276.37 points, or 3.94%, to close at 31,104.97. The S&P 500 shed 4.32% to 3,932.69, and the Nasdaq Composite lost 5.16% to end the session at 11,633.57.
"What is perhaps most disconcerting in all this is that the strength in core inflation is very much service sector-led categories," said Ray Attrill, National Australia Bank's head of FX strategy, wrote in a note, adding the sector is primarily wage inflation-driven.
— CNBC's Jeff Cox, Jesse Pound and Carmen Reinicke contributed to this report.
Asia's central banks at risk of being 'forced' to hike more than they want to, DBS says
Asian central banks are at risk being 'forced' to hike rates more than they want to as inflation remains persistent in the U.S., said Taimur Baig, chief economist at DBS.
As the U.S. Federal Reserve sticks to its aggressive stance on monetary policy, there will be a "profound implication" for interest rates and capital flows into Asia, he said.
Virtually all central banks in the region want to lag, rather than match, the U.S. Federal Reserve because their "domestic imperative is fundamentally different from the U.S.," Baig said, adding Asian economies have not grown in the same as the U.S. has, and their reopening dynamic remains "nascent."
— Charmaine Jacob
Oil prices decline following concerns of another Fed hike
Oil prices dropped on Wednesday following prospects of another Fed rate hike after consumer prices rose in August.
The Organization of the Petroleum Exporting Countries (OPEC) reiterated its forecasts of seeing global oil demand growth in 2022 and 2023 in a latest report.
— Lee Ying Shan
Kevin O'Leary says volatility is back, but could be opportunity
Billionaire investor Kevin O'Leary says there are opportunities in today's volatile market.
"The best thing to do here is — since you can't guess the bottom — is to take opportunities on days like today and buy stocks that you think are attractive," the chairman of O'Shares Investments told CNBC's "Street Signs Asia."
He added that the bulk of the economy is still robust, and the Fed will continue to raise rates until they see "some kind of slowdown."
Read the full story here.
— Lee Ying Shan
Tech names drag down the wider Hong Kong market
Japanese yen slightly strengthens after report on BOJ's 'rate check'
The Japanese yen strengthened more than 0.5% after hovering around 24-year low levels following a Nikkei report that the Bank of Japan has conducted a "rate check."
The report said the action was taken in preparation for currency intervention, as the yen inched close to 145 against the dollar following the U.S. inflation report.
Policymakers in Japan have expressed concern over the weakening yen. The country's finance minister, Shunichi Suzuki, said recent moves in the currency are "rapid and one-sided," according to a Reuters report.
"If such moves continue, we must respond without ruling out any options," he said.
The yen now stands at 143.87 against the greenback.
Taiwan hosts foreign lawmakers to push for China sanctions, Reuters reports
Taiwan's representative in the U.S. Hsiao Bi-khim hosted about 60 international lawmakers in its office in Washington, Reuters reported, citing a draft of a statement that it has seen.
The group of lawmakers from Europe, Asia and Africa — or the Inter-Parliamentary Alliance on China — are expected to sign a statement to nudge their respective governments to support action against "military or other coercive" actions on Taiwan, according to a draft, Reuters said.
The document to be signed will also include efforts to increase mutual visits to the island by lawmakers, Reuters reported.
CNBC Pro: Morgan Stanley says an investment 'boom' is coming to India, and names the stocks to play it
India is about to see a surge in investments, according to Morgan Stanley, whose analysts wrote a note entitled "How to Play India's Coming Capex Boom."
CNBC Pro spotlights 3 stocks that the bank thinks are set to benefit as a result of the spending spree.
Pro subscribers can read more here.
— Zavier Ong
Japan's machinery orders grow again in July, beats expectations
Core machinery orders in Japan jumped 5.3% in July from the previous month, beating expectations for a 0.8% contraction in a Reuters poll. That figure grew 0.9% in June.
Compared to July 2021, core orders increased more than 12%, beating a 6.6% growth prediction forecast by economists in a Reuters poll.
— Abigail Ng
CNBC Pro: Morningstar says this is 'one of the best' value-focused funds
For investors, it has been a toss-up between value and growth stocks for much of this year.
As the focus swings back to value, independent mutual fund rating company described one value-focused fund as "one of the best large-value funds available."
— Weizhen Tan
Traders are now split between a 75 basis point or 100 basis point Fed hike
Some traders are now expecting a full point rate hike from the U.S. Federal Reserve at its September meeting, according to the CME FedWatch tracker of Fed funds futures bets.
The probability of a 100-basis-point rose to 33% from 0%, and the chance for a three-quarter point hike fell to 67% from 91% a day earlier.
Economists at Nomura now also expect to see a full percentage hike.
— Abigail Ng