Tokyo's benchmark index closed down nearly four percent on Thursday, as US President Donald Trump said the Federal Reserve had "gone crazy" with plans for higher interest rates.
The Nikkei 225 index plunged 3.89 percent, or 915.18 points, to end at 22,590.86, while the broader Topix index shed 3.52 percent, or 62.00 points, to 1,701.86.
In a phone interview with Fox News, Trump said, "The Fed is going wild and I mean I don't know what their problem is but they're raising interest rates and it's ridiculous."
"The Fed is going loco and there's no reason for them to do it and I'm not happy about it," he added.
US shares plunged on Wednesday as worries about surging US interest rates and the impact of trade disputes prompted a broad-based sell-off that wiped more than three percent from major indices.
Traders would be avoiding risk-taking after the drop on Wall Street and a higher yen, strategist Yoshihiro Ito of Okasan Online Securities said in a commentary.
The dollar fetched 112.17 yen in Asian trade, down from 112.35 yen in New York and 113.00 yen in Tokyo late Wednesday.
Blue-chip exporters tumbled widely, with Olympus plunging 4.51 percent at 4,230 yen and Sony down 4.27 percent to 6,288 yen.
Toyota fell 2.41 percent to 6,597 yen while Uniqlo operating chain Fast Retailing dropped 4.24 percent to 57,260 yen before releasing its full-year earning report.