Tokyo led a rout of Asian shares Thursday, mirroring big losses on Wall Street after the Fed defied unprecedented pressure from Donald Trump and raised interest rates, sparking fears the move could choke economic growth.
The Nikkei plunged to a 15-month low as investors took fright over the pace of monetary tightening, with a slump triggered by the Dow's fall to its lowest level of 2018 gathering pace.
The US Federal Reserve raised rates for the fourth time this year -- as expected -- but markets reacted badly after chairman Jerome Powell said the bank would not shift course on reducing its balance sheet.
Investors had hoped for a less aggressive approach amid concern that global growth is slowing, but Powell played down the impact of recent market turmoil on the US economy.
"They think the Fed has completely misjudged the situation and now it's just a matter of just trying to find an exit while you can," said Kyle Rodda, a market analyst at IG Group in Melbourne.
"We're probably entering a stage now where markets have got it (in) their head that we're preparing for quite sustained downside going into 2019."
The Fed now projects only two interest rate increases, down from three previously, as it trimmed its forecast for US growth and inflation.
Stephen Innes, head of Asia-Pacific trade at OANDA, said the "Fed delivered a dovish hike, but clearly, there wasn't enough affirmation in the statement that the Fed was close to pausing or ending their interest rate hike cycle sooner than expected".
Some analysts were puzzled by investors' reaction.
Ray Attrill, strategist at National Australia Bank, said the post-Fed sentiment was "a bit surprising" given the bank stressed a "gradual" pace of rate hikes next year.
But the spillover from the rate hike continued to rattle investors in Asia Thursday, deepening concern over global growth prospects which are already facing headwinds from President Trump's trade war with Beijing, a slowing Chinese economy, and potential turmoil from Britain quitting the European Union.
Trade war truce
Japanese stocks were given little support by the Bank of Japan, which left rates unchanged with the threat of trade protectionism and slowing global growth casting a pall over the export-dependent economy.
A strong yen also put downward pressure on stocks, with the dollar falling below 112 yen.
Nissan dropped more than two percent after a Japanese court rejected prosecutors' request to extend the detention of former Nissan chairman Carlos Ghosn after his arrest for financial misconduct.
Shanghai was down more than 0.5 percent, even after the People's Bank of China said it would supply lower-cost liquidity for up to three years to banks willing to lend more to small companies, as policy makers aim to shore up the flagging economy.
Sydney closed more than one percent lower while Hong Kong was also down in afternoon trade.
Wednesday's quarter-point hike in the US came after Trump repeatedly demanded on Twitter the bank hold rates, in what was regarded as the most public assault on the Fed's independence in decades.
The US president has cited the dollar's strength as a reason the Fed should stop raising interest rates because higher rates tend to attract foreign capital to a currency.
Both oil contracts slid Thursday, reversing strong gains from a day earlier on concerns about growth and US oversupply, and tracking equity losses.
A smaller than expected fall in US crude stockpiles added to supply glut fears triggered earlier this week by forecasts of increasing shale oil production.
Traders are also wary of prospects of softening global growth.
"A tepid global economic growth outlook also weighed on oil prices as the demand for energy is probably going to remain subdued," said Margaret Yang Yan, from CMC Markets in Singapore.
Key figures around 0710 GMT
Tokyo - Nikkei 225: DOWN 2.8 percent at 20,392.58 (close)
Hong Kong - Hang Seng: DOWN 1.3 percent at 25,536.36
Shanghai - Composite: DOWN 0.5 percent at 2,536.27 (close)
Euro/dollar: UP at $1.1408 from $1.1377
Dollar/yen: DOWN at 111.91 yen from 112.43 yen
Pound/dollar: UP at $1.2662 from $1.2616 at 2200 GMT
Oil - West Texas Intermediate: DOWN 9 cents at $47.11 per barrel
Oil - Brent Crude: DOWN 93 cents at $56.31 per barrel
New York - Dow: DOWN 1.5 percent at 23,323.66 (close)
London - FTSE 100: UP 1.0 percent at 6,765.94 points (close)