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Japanese stocks slumped further on Wednesday, joining a global selloff in equities and commodities as investors were rattled by the absence of fresh steps from the Bank of Japan to calm turbulence in the domestic bond market.
US stocks slipped in a volatile session while European shares fell to six-weeks lows on Tuesday on concern that central bank support for markets was turning more cautious, as the BOJ's move came amid persistent speculation about the US Federal Reserve toning down its strong stimulus later in the year.
Japan's Nikkei stock average opened down 1.7% after skidding 1.5% at the close the day before. The Nikkei scaled a 5-1/2-year high last month.
"Those who could not sell enough Japanese shares in the previous session will likely sell today. Although investors were already frustrated after yesterday's BOJ outcome, the bad mood was exacerbated by the negative reaction overseas," said Yutaka Miura, a senior technical analyst at Mizuho Securities.
MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.2%, recovering from a fresh 6-1/2-month low hit on Tuesday when the index fell for a fifth straight day of declines to mark its longest losing streak in nearly three months.
Australian shares were down 0.2 % while South Korean shares opened down 0.3%. Markets in China and Hong Kong are closed for holidays.
The BOJ on Tuesday held off from taking additional steps to curb bond market volatility, arguing that bond markets had stabilised. BOJ Governor Haruhiko Kuroda said that the central bank will consider fresh measures to calm markets if borrowing costs spike again in the future.
The lack of new action, following an unprecedented bond-buying programme launched in April, disappointed some in markets who had speculated the BOJ would strengthen the bond buying scheme to bring down borrowing costs.
The tumult in the Japanese bond market has raised concerns that it could undercut the BOJ's ultra-easy monetary policy and deal a blow to the government's campaign to revive the world's third-biggest economy.
The dollar was up 0.1% to 96.11 yen after falling more than 2 % on the day to a low of 95.59 yen overnight, approaching a two-month low of 94.975 touched on Friday. Just last month, the US currency hit a 4-1/2-year peak of 103.74 against the yen, underpinned by the BOJ's massive stimulus.
The BOJ's decision came as volatility in global financial markets had heightened over the past few weeks on the speculation over the Fed tapering. Slowing growth in China, a deep slump in Europe and volatility in Japanese bonds and stocks have also unnerved investors.
Sentiment towards Japan has also been hit recently as investors began to wind down their excessive expectations for Prime Minister Shinzo Abe, suspecting that Abe might be holding off from announcing harsher structural reforms needed to invigorate Japan until after an election in July.
Since mid-November when expectations began building for Abe, who became prime minister in December, to pursue bold stimulus measures to pull Japan out of deep deflation, the dollar rose 30 % against the yen and the Nikkei gained about 80 % to their respective peaks in May.
"Yesterday's reactions after the BOJ seem to suggest that there are still some left in markets who had not wound down positions betting on expectations for Abe," said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo.
US crude futures were down 0.5% to $94.92 a barrel.
