Japan's Nikkei share average shed 2% on Wednesday to a four-month closing low as exporters took a beating on a firmer yen after the Bank of Japan's latest statement raised doubt about its commitment to easing monetary policy.
The BOJ dropped from its latest statement a line that the central bank will pursue powerful monetary easing, saying instead it will conduct appropriate policy, sending the yen higher against the dollar.
Shares of exporters were further pressured by fears that European leaders meeting later in the day would not be able to agree on fresh steps to tackle the region's sovereign debt crisis.
"This is very speculative selling led by futures. Most of the investors are waiting for the EU summit today. There is no active trading in the market, so it's futures selling by hedge funds," said Takashi Hiroki, chief strategist at Monex Inc.
The Nikkei was down 172.69 points at 8,556.60, erasing the 1.4% technical rebound over the past two sessions since it suffered a 3% slide on Friday.
If the Nikkei were to end the week lower it would be an eighth straight week of losses, its longest such run since 1992.
The benchmark has fallen 16.6% since hitting a one-year high on March 27 on concerns over a slowing global growth and a deepening euro zone debt crisis.
Canon Inc <7751.T>, Nikon Corp and industrial robot maker Fanuc Corp <6954.T> lost between 2.1 and 3%.
Automakers Nissan Motor Co <7201.T>, Honda Motor Co <7267.T> and Toyota Motor Corp <7203.T> were higher in the morning session before the BOJ concluded its two-day meeting. They ended the day down between 0.5 and 1.4%.
Mazda Motor Corp advanced 0.9%, however, after a source said the loss-making automaker is in talks with Italy's Fiat SpA <FIA.MI> to form a business tie-up as it seeks a revival path after losing its strategic partnership with Ford Motor Co.
"The dollar sold off half a yen, which is a pretty big move given the volatility. That's kind of telling you that the market had some expectations out there," a senior trader at a European bank said.
"If you look at the futures activity, the Nikkei trades a lot worse than Topix. It kind of feels like someone is bashing the Nikkei over the course of the day."
The broader Topix index eased 1.6% to 721.57.
Investors retreated to defensive stocks, with Japan Tobacco up 1.9%, the biggest gain of the Topix Core 30, and telecoms firm KDDI adding 1.1%.
Nearly 1.92 billion shares changed hands, up from Tuesday's 1.52 billion but slightly lower than last week's average of 1.97 billion.
TDK Corp shed 4.9%, hurt by overnight weakness in peers Seagate Technology and Western Digital Corp after an analyst report said hard-disk drive inventory increased sharply week-on-week.
Nidec Corp, which makes small motors for HDDs, lost 4.2%.
Social network gaming company DeNA Co Ltd also fell sharply, down 4.5% after Credit Suisse downgraded its rating to "neutral" from "outperform".
