The Nikkei share average plunged 4.14 percent on Tuesday to book its biggest one-day percentage loss in two years as Advantest Corp and other high-tech firms fell after drops in their US peers, while concerns over price competition sent flat-screen TV makers lower.
Sharp Corp and Sony Corp lost ground after a downward earnings revision by rival LG. Philips LCD of South Korea, sparking worries about sliding prices and demand in the sector.
Analysts said the market also came under pressure after Bank of Japan Governor Toshihiko Fukui said in parliament that he had contributed 10 million yen ($87,390) to the fund run by Yoshiaki Murakami, who was arrested last week for insider trading, before he became the central bank governor.
"The market was already faltering when the news on Fukui's investments came out," said Yoshihisa Okamoto, senior vice president at Fuji Investment Management, adding that the market sentiment had turned so bearish that further falls are likely.
"If investors are worried about the economic recovery, defensive stocks such as utilities and drug shares should hold firm. But even these shares were sold. This is not a good sign," he said.
The Nikkei lost 614.41 points to 14,218.60, the lowest close since November 16. It logged its largest one-day percentage loss since May 2004. The Nikkei has now dropped about 20 percent since April 7 when the benchmark hit its intraday high for the year. The TOPIX index tumbled 3.48 percent to 1,458.30, its lowest close since October 31. Technology stocks were lower after the Nasdaq Composite Index fell, with microchip-tester maker Advantest tumbling 5.5 percent to 10,320 yen.
Concerns about price competition in flat display panels sent Sharp, the world's biggest maker of liquid crystal display TVs, lower by 7.1 percent to 1,613 yen. Sharp earlier dropped as low as to 1,612 yen, its lowest intraday since October last year.
Sony fell 3.3 percent to 4,770 yen, and its rival Matsushita Electric Industrial Co Ltd gave up 5.5 percent to 2,215 yen after earlier hitting its lowest for the year. Steel shares, which have held relatively firm, were sold. JFE Holdings Inc, the world's fourth-largest steel maker, shed 5.6 percent to 4,190 yen. The stock gained 9 percent in May when the TOPIX lost 8 percent. Nippon Steel Corp also fell 3.8 percent to 377 yen.
The brokerage sector was the worst performer on the Tokyo exchange's main board on expectations that recent declines in the stock markets would depress their revenues. Nomura Holdings Inc fell 5.6 percent to 1,988 yen. In the non-ferrous metal sector, Sumitomo Metal Mining Co Ltd, Japan's biggest gold producer, dropped 5.9 percent to 1,243 yen as investors flee the commodities market, resulting in a fall in copper and gold prices.
A notable stock was advertising firm Dentsu Inc, which has the rights to sell tickets and broadcasting rights for the World Cup soccer tournament in Germany. It fell 5.6 percent to 319,000 yen after the Japan team lost its opening match against Australia. Trade volume was about the same as Monday with 1.97 billion shares changing hands. Decliners swamped advancers by a ratio of about 10 to 1.