The benchmark Nikkei 225 index fell 2.94 percent or 609.00 points to 20,111.29 in the first few minutes while the broader Topix index was down 2.87 percent or 43.24 points at 1,462.64.

Beijing parried US President Donald Trump's latest tariff announcements by moving to let the Chinese yuan devalue and halting purchases of US agricultural products.

Trump fired back, formally designating China as a currency manipulator.

Investor sentiment took a hit as the trade war between the world's two biggest economies escalated quickly.

After last week's tariff announcement by Trump, the market was expecting a reaction from China, noted Rodrigo Catril, senior strategist at National Australia Bank.

"But based on recent behaviour, there was still some expectation for China to take its time while also aim for a more measured response," he said in a note.

"In the end, we got a little bit more than anticipated," he said, with Beijing letting its yuan fall to levels the Chinese authorities had previously been cautious to breach.

"We think it sends a signal that China is gearing up for a long trade battle with the US," he said.

"Recent events suggest a US-China trade deal is unlikely... any time soon and indeed it seems reasonable to expect trade tensions to get worse before they get better."

On Wall Street, the blue-chip Dow Jones Industrial Average sank 2.9 percent in the worst session of the year, the broad-based S&P 500 slumped 3.0 percent and the tech-rich Nasdaq Composite Index tumbled 3.5 percent.

The yen has rallied against the dollar, attracting safe-haven buying during the market turmoil.

The dollar was trading at 105.66 yen against 105.95 in New York Monday afternoon. The greenback was in the 108-yen range for most of last week before Trump announced the new tariffs on China.

A strong yen sent exporters lower as it could erode their profits when repatriated.

Toyota tumbled 3.22 percent to 6,664 yen and Honda lost 2.41 percent to 2,504 yen.

Panasonic plunged 3.39 percent to 817.7 yen.