Tokyo's key Nikkei index nosedived nearly two percent at the open before recovering slightly to finish 1.2 percent down.
The losses followed a dark day on European bourses and on Wall Street, with all three US benchmarks tumbling around three percent and US bond yields plunging as investors deserted stocks for safer Treasury assets.
"The Japanese stock market is sliding against the backdrop of sharp falls in US shares," Okasan Online Securities said in a note.
"Worries over the US economic recession grew, while negative economic data for China and Germany also prompted investors to downgrade their views on the global economy," Mizuho Securities added.
The yield on the 10-year US Treasury note briefly slid below the yield on the two-year bond, a so-called "inversion" that has been a reliable harbinger of recession for decades.
Coming on the back of an intensifying US-China trade war that shows no signs of resolution, the flight to bonds signalled the growing fears of a global recession.
"US-China trade tensions have metastasised into something more sinister by affecting global growth to such a large degree that bond markets are pricing-in a high probability of a worldwide recession", warned Stephen Innes, managing partner at VM Markets.
The trade war has hammered global demand, with Chinese industrial output hitting a 17-year low while investment and retail sales have also slowed in the world's number two economy.
Weeks of pro-democracy protests in Hong Kong have added to the climate of uncertainty, with Beijing referring to the increasingly violent demonstrations as "terrorism", stoking fears of a Chinese crackdown.
Sydney plummeted nearly three percent while Singapore shed 1.2 percent. But Hong Kong recovered from early losses, adding 0.8 percent after opening 1.5 percent down. Shanghai closed 0.3 percent higher after shedding 1.7 percent at the open.
- 'Risk-toxic environment' -
============================
Economists have warned for months that the trade tensions were threatening investment and dampening global sentiment, which is already suffering due to China's slowdown and fears over Brexit's impact on Britain and Europe.
"The now drawn out US-China trade war has sapped investor confidence. It is now threatening to turn what would have been an orderly and gentle slowdown, after ten years of uninterrupted growth, into something potentially much more aggressive," said Jeffrey Halley, senior market analyst at OANDA.
The rush to safe-haven investments saw gold breach the $1,500 level on Wednesday and stay in that territory.
"Gold has consolidated nicely... and may be poised for further gains. The sea of red in asset markets globally over the last 24 hours may reinforce this view", Halley said.
Eurozone stocks recovered slightly in early trade Thursday following Frankfurt's slump to its lowest level since March a day earlier after German data showed that Europe's largest economy contracted in the second quarter.
Frankfurt edged up 0.1 percent while Paris was flat. London was down 0.3 percent.
"In this risk-toxic environment, the only thing that could help shift equity sentiment is if the Fed pulls back to back (rate cuts) out of their hat, something the markets are beckoning them to offer up but are unlikely to deliver," said Innes.
US President Donald Trump, who has repeatedly slammed the Federal Reserve for not cutting interest rates more sharply and frequently, blasted Chairman Jerome Powell on Wednesday, calling him "clueless" for being too slow to lower rates.
But some observers wonder whether the Fed and other central banks will be able to do much to avert a downturn as the trade spat deepens.
- Key figures around 0800 GMT -
===============================
Tokyo - Nikkei 225: DOWN 1.2 percent at 20,405.65 (close)
Hong Kong - Hang Seng: UP 0.8 percent at 25,495.46 (close)
Shanghai - Composite: UP 0.3 percent at 2,815.80 (close)
London - FTSE 100: DOWN 0.3 percent at 7,130.03
Euro/dollar: UP at $1.1148 from $1.1138 at 2100 GMT
Pound/dollar: UP at $1.2078 from $1.2056
Euro/pound: DOWN at 92.34 pence from 92.38 pence
Dollar/yen: UP at 106.24 yen from 105.78 yen
West Texas Intermediate: UP one cent at $55.24 per barrel
Brent North Sea crude: DOWN 15 cents at $59.33 per barrel
Gold: UP $2.00 at $1512.29 per ounce
New York - Dow: DOWN 3.1 percent at 25,479.42 (close)