TOKYO - Japan's Nikkei share average stumbled to a fresh 16-month low in heavy trade on Friday, and posted the biggest weekly drop since 2008 as investors scrambled to dump risky assets after the dollar dived to a 15-month low against the yen.
The Nikkei sank 4.8 per cent to 14,952.61, the lowest closing level since October, 2014.
For the week, the Nikkei dived 11.1 per cent, the biggest weekly drop since October, 2008.
Topix's volume was outstanding, with 4.704 billion shares changing hands, the largest since last August.
Japanese markets were closed for a public holiday on Thursday, when the dollar fell as low as 110.985 yen (S$1.377), its lowest level since October 2014 as fears of a global economic slowdown and concerns about stress in the banking system increased demand for safe haven assets.
Traders said that investors feared Japanese exporters' hopes of earnings growth will suffer if the yen strengthens further.
Automakers were hammered. Toyota Motor Corp fell 6.8 per cent and Honda Motor Co dropped 5.5 per cent.
According to analysts at Nomura Securities, when the dollar falls by 1 yen, it cuts Japan Inc's pretax earnings by 0.4-0.5 per cent and pushes the Nikkei share average down by 400 points.
Masaru Hamasaki, head of market & investment information department at Amundi Japan, said the Nikkei could stay below the 15,000-line for the time being, with more potential seen on the downside.
Brokers were also battered, with Nomura Holdings diving 9.2 per cent and Daiwa Securities tumbling 8.2 per cent.
Japanese stocks' steep drop followed the Bank Of Japan's decision to adopt negative interest rates late last month, but the yen has gained as investors dumped riskier assets and look for safe havens amid the market turmoil.
Federal Reserve Chair Janet Yellen did little to help the dollar in her second day of testimony before US lawmakers. While she said she still expects the Fed to gradually hike interest rates this year, she reiterated that policymakers were not on a "pre-set" path to return policy to "normal" given a worsening meltdown in global stock markets.
All of the Topix's 33 subsectors fell.
The broader Topix dropped 5.4 per cent to 1,196.28 and the JPX-Nikkei Index 400 fell 5.6 per cent to 10,780.40.