The benchmark Nikkei 225 index at the Tokyo Stock Exchange fell 180.90 points to close at 8,560.26, while the Topix index of all first-section issues lost 12.59 points or 1.66 percent to 744.54.

In a plan dubbed "Operation Twist," the Fed said after a two-day policy-setting meeting that it would shift $400 billion in its shorter-term debt portfolio holdings to longer-term bonds.

The move would not involve printing any more money, but supporters say it could lower rates and prod cash-rich banks to put their idle reserves to work.

But in announcing the new measures, the Fed painted a grim picture of the economy, struggling with slow growth, high unemployment and a depressed housing market.

Investors were disappointed by the Fed announcement, said Yutaka Miura, a senior technical analyst at Mizuho Securities.

"The Fed's economic view is sharply deteriorating and there seems to be little it can do as a next step with Republicans calling on the Fed not to intervene," he told Dow Jones Newswires.

The Nikkei index accelerated its drop following sluggish preliminary HSBC China Manufacturing Purchasing Managers Index (PMI) data and the yen's strength against the euro.

The data from the British banking giant showed manufacturing activity in China contracted for the third straight month to a two-month low in September as turbulence in the United States and Europe hurt demand for exports.

"Investor sentiment is highly unstable and there are very few steady buyers," said Yoshinori Nagano, a senior strategist at Daiwa Asset Management.

The euro fetched 104.04 yen in Tokyo afternoon trade against 103.74 yen in New York where the European common currency had fallen to a 10-year low of 103.64.

Honda Motor lost 3.88 percent to 2,275 yen, with Sony off 1.78 percent at 1,484.

Softbank dived 12.29 percent to 2,282 on a report by the Nikkei business daily that rival KDDI will start selling Apple's iPhone 5 after its expected launch.

KDDI closed down 0.79 percent at 624,000, giving up early gains.