The Nikkei plunged more than 5 percent in its biggest one-day loss since the September 11 attacks on Friday as sharp gains in the yen triggered concern about Japan's economic outlook and companies' profits, hammering shares of exporters such as Toyota Motor Corp.
The Nikkei is 16.5 percent below this year's peak logged in February. For the whole week, the benchmark tumbled 8.9 percent, the biggest drop in seven years.
A dive in commodity prices hit nonferrous metals stocks, trading firms and other energy-related stocks, pulling the broader TOPIX index down to its lowest in nearly 13 months.
The yen was being whipped around by speculators and investors grappling with massive market moves the previous day. By the stock market close it was around 112.50 yen, much stronger than Toyota's assumption of 115 yen to the dollar for the business year to next March.
The outlook for Japan's economy was also clouded.
The latest GDP data showed exports were weak and Japanese corporations could not benefit from the cheap yen, said Daisuke Uno, a market strategist Sumitomo Mitsui Banking Corp.
There's now a possibility that corporate profits and the Japanese economy, both having been said to remain firm, could falter.
The Nikkei slid 874.81 points or 5.42 percent to end at 15,273.68, the lowest since August 7, 2006. It also booked its biggest daily percentage loss since September 12, 2001, the first trading day after the attacks on New York and Washington.
The broader TOPIX lost 5.55 percent to 1,480.39, the lowest finish since July 2006.
Tokyo saw active trade with 2.9 billion shares changing hands. Decliners dwarfed advancers by 1,620 to 87.
Daiwa Institute of Research said growth of recurring profits at the major 300 firms on the first section has been estimated at 7.8 percent with an assumed exchange rate of 115 yen to the dollar for this financial year. That growth could slow to 5.1 percent if the yen strengthens to 110 yen.
Masami Hamaguchi, a senior strategist in the research planning department at Daiwa Institute of Research, said the market fell as expectations have been high that the yen would boost corporate profits. Still, he said companies have a buffer.
Unless the yen breaks below 105 yen, there's no need to worry about profits being completely wiped out.
Exporters were hit nonetheless.
Shares of Toyota slid 7.2 percent to 6,190 yen and consumer electronics maker Sony Corp. declined 6.8 percent to 5,050 yen.
Prices of commodities such as copper and zinc plummeted, prompted selling in the energy sector. Sumitomo Metal Mining Co. plunged 16.4 percent to 1,940 yen and gas and oil developer INPEX Holdings Inc. tumbled 9.8 percent to 938,000 yen.
Shipping stocks also took a beating as the Nikkei business daily reported on Friday that oil tanker spot shipping rates between the Middle East and Japan have fallen by roughly half in five months.
Mitsui O.S.K. Lines tumbled 10.6 percent to 1,450 yen and Kawasaki Kisen Kaisha Ltd. lost 13.1 percent to 1,292 yen.
A few bright spot included KDDI Corp., Japan's second-biggest phone company, which rose 3.7 percent to 868,000 yen as investors looked for shares of companies that rely on domestic demand and have less exposure to the yen's fluctuations.
(Additional reporting by Aiko Hayashi)