Japan's Nikkei stock index plunged more than 10 per cent in early trade after Wall Street dived overnight as fears of a global recession grew.
The Tokyo Stock Exchange's benchmark Nikkei-225 index lost 985.95 points or 10.33 per cent to 8,561.52.
Wall Street's Dow Jones index sank 7.87 per cent yesterday after US retail sales fell much more than expected and Federal Reserve chairman Ben Bernanke said a recovery from the financial crisis "will not happen right away."
"Following the second-biggest fall on Wall Street, it's inevitable that Japanese stocks are sliding," said Hiroaki Hiwata, a stock market strategist at Toyo Securities.
"The key to the outlook is whether investors focus on the financial strength of some Japanese companies rather than on external factors," he said.
US retail sales slumped 1.2 per cent in September, a sign of deeper troubles for an economy ailing from a financial market firestorm and tight credit.
The drop in sales was the steepest since August 2005 and weaker than market expectations for a 0.7 per cent decline.
Most analysts now say that a US recession appears virtually certain as a crippling credit crunch and housing meltdown drags down the rest of the economy despite a 700-billion-dollar banking sector rescue plan.