Nikkei Leads Asia Lower; Central Banks Watched

Tokyo equities tumbled on Tuesday, weighed down by a strong yen, while most other Asian markets fell as weak U.S. factory data raised concerns that the effects of fiscal tightening have started to hurt the world's largest economy.

The Nikkei pared earlier steep losses to close down 1 percent, Shanghai shares hit a fresh low for 2013 and Seoul's Kospi fell well-below the 2,000 level. Australia's S&P ASX 200, however bucked regional weakness to close up 0.4 percent.

A raft of central bank meetings this week added to a cautious tone in regional markets. The Reserve Bank of Australia (RBA) left rates on hold, as expected on Tuesday, while the Bank of Japan begins a two-day policy review on Wednesday and the European Central Bank meets on Thursday.

(Read More: Will Japan's Central Bank Deliver or Disappoint?)

"Whatever asset class, this is a huge week, and a move away from correlated markets could well be on the cards," Chris Weston, chief market strategist at IG Markets, wrote in a note.

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Nikkei Regains 12,000

Japan's benchmark stock index fell as much as 2.7 percent to its lowest levels in a month earlier in the session after the yen shot up to a fresh one-month high at 92.54 per dollar as Monday's weak U.S factory data weighed on the U.S. currency.

Currency-sensitive exporters took a hit with Komatsu tumbling nearly 4 percent and Nissan Motor falling 3.5 percent. Any yen appreciation decreases earnings made abroad when they are repatriated.

The Nikkei's losses come ahead of Wednesday's Bank of Japan (BOJ) meeting, where central bank chief Haruhiko Kuroda is expected to announce radical stimulus measures to kick start the Japanese economy.

(Read More: How Closely Is Kuroda Emulating Bernanke?)

"What will be a key litmus test will be what he [Kuroda] does in terms of open-ended quantitative easing," Callum Henderson, global head of currency research at Standard Chartered.

Kospi Below 2,000

Shipbuilders dragged the Kospi lower after STX Offshore and Shipbuilding interested financial support from creditors, sparking a steep sell-off in the sector. STX skidded 15 percent while Hanjin Heavy Industries lost 8 percent.

Meanwhile, construction stocks were sold off after the previous day's strong gains. Doosan Engineering and Construction fell 3.7 percent. Monday's rally came after the government announced steps to revive the real estate market, the first in a string of measures to stimulate the broader economy.

Market heavyweight Samsung Electronics firmed 0.9 percent ahead of releasing earnings guidance later this week.

Shanghai Closes Down 0.3%

The Shanghai Composite closed near a fresh low for 2013 as drug makers weighed on the index.

The official Economic Information Daily newspaper reported that drug price reforms may reduce the profits of major distributors, which sent shares tanking sector-wide. Zhejiang Hisun Pharmaceutical led losses with a fall of 4.3 percent.

Meanwhile, Hong Kong's stock market pared earlier losses to cross the 22,367 mark after trading flat for most of the session. It reopened after the Easter-weekend holiday.

Property shares gained, taking their cue from Monday's relief rally in mainland property stocks following news that major Chinese cities will enforce tightening measures. R&F Properties rallied 1.8 percent and Soho China rose 2.3 percent.

In a report dated April 1, analysts at Citi Research said that these measures were milder-than-expected and would only have limited near-term pressure on shares, which helps explain the relief rally.

RBA Steady

Australia's stock market showed little reaction to a decision by the central bank to leave its cash rate unchanged, as expected. The Australian dollar traded above parity against the dollar, barely moving after the rate decision.

(Read More: RBA Keeps Rates on Hold on Lower Downside Risks)

In a statement, the RBA said there was scope to ease policy further and it would continue to assess Australia's growth outlook.

"We certainly aren't looking out for any more interest rate cuts in this cycle but it's very early to start talking about it. We've still got a few humps in the global and local economy to get through," said Nicki Hutley, director of economics at KPMG.