Stocks in Tokyo tumbled to their lowest level since mid November as investors worried about slowing growth in China and on increasing bets the US Federal Reserve will further reduce its stimulus efforts.
The benchmark Nikkei 225 index closed down 2.51% or 385 points at 15,005 on higher than usual volumes while the broader Topix fell 35 points or 2.80% to 1,229. The Hang Seng index closed down 473 points or 2.11% to 21,976.
Asian stocks mirrored Friday's global stock market rout, sparked by Thursday's report that showed China's massive manufacturing sector had contracted.
The strong yen against the dollar
also weighed on market sentiment and sent many exporters sharply lower. The dollar was last seen trading at around ¥102.32. Safe haven currencies such as the yen and Swiss franc continued to be in demand on Monday as the emerging markets sell-off continued.
Economic news failed to provide any cheer after Japan's trade deficit widened more than expected in December to 1.302trn yen as the rate of exports slowed, according to data from the country's Ministry of Finance.
Elsewhere Bloomberg reported that China Credit Trust has reached an agreement to restructure a high-yield trust product, soothing concerns about a default.
The product, which raised funds for a coal miner in the province, was issued by China Credit Trust and distributed by Industrial and Commercial Bank of China.
There has been pressure to compensate around 700 investors who bought the three-year trust product. Beijing-based China Credit Trust confirmed that an agreement had been reached, including a potential investment in the 3bn-yuan product.
There has been much focus on the threat of defaults in China's fast growing $1.67trn trust industry and while Monday's agreement soothed jitters about the troubled product and risks in the wider financial system, it raises the question of similar defaults and the stability of the financial system.
Stocks on the move included chipmaker Advantest tanked 6.1% while machinery maker Komatsu lost 4%. Honda motored 2% lower in Tokyo.
Heavyweight clothing chain Fast Retailing retreated 1.60% after it confirmed it was planning a secondary share listing in Hong Kong.
Companies such as Toshiba, Nintendo, Honda came under the spotlight ahead of their quarterly results later this week.
In Hong Kong stocks tumbled ahead the Fed's two-day meeting, starting Tuesday. Officials are expected to further reduce the central bank's monthly bond-buying by $10bn to $65bn amid signs of momentum in the world's largest economy.
Retailers Belle International and Esprit were down 5.3% and 4.01% respectively.
Oil giant Cnooc was down 3.5% while China Shenhua surrendered 3.6% in a session marked by sweeping losses across the board.