Asia: Nikkei slides as investors flee to safety

Stocks in Japan fell more than 5% on Tuesday, and the yield on the country's benchmark government bond slid into negative territory for the first time as investors showed signs they were huddling under safe havens.

The Nikkei Stock Average followed the lead of the US markets overnight and closed down 5.4%, finishing at 16,085.44 amid fears of a global economic slowdown. It was the largest one-day percentage drop since June 2013.

The yen - often described as a safe haven investment during market volatility - rose against the US dollar during the day. It was last up 0.49% to JPY 115.28 against the US dollar; from trading at JPY 120 versus the greenback at the time of the Bank of Japan's negative rate announcement in January.

Financial stocks were hit particularly hard due to those stability concerns, with Japan's largest bank Mitsubishi UFJ Financial Group closing down 8.73%. The country's largest brokerage, Nomura Holdings, lost 9.06%.

During afternoon trading in Tokyo, the benchmark 10-year government bond was yielding -0.025%, meaning investors were lending the government money for 10 years and getting back less than they put in.

Analysts described it as the most significant outcome of the Bank of Japan's late January decision to introduce negative interest rates on a number of its commercial bank funds. Yields for both short and long-term bonds had been pushed down since that decision.

"I think investors will likely test how far the yield can go down", said Daiwa Securities strategist Yukio Ishozuki, pointing to speculation the central bank would push interest rates deeper into negative territory.

Bank of Japan governor Haruhiko Kuroda had previously confirmed that was a step he would be willing to take given the right circumstances.

Sumimoto Mitsui Asset Management chief strategist Hitoshi Ishiyama also believed the US Federal Reserve's landmark interest rate rise in December was still having an effect on markets, instilling fears about a tighter climate and driving down oil prices.

"Slower demand and oversupply along don't explain these tumbles", he said. "Oil prices are taking a hit from a major shift in monetary policy."

Oil prices were heading in an upward direction after Asian trading, however. Brent crude was last up 0.93% to $33.19 per barrel, and West Texas Intermediate was up 2.18% to $30.35.

In other markets, the S&P/ASX 200 closed 2.88% lower after oil fell below $30 a barrel in US trading on Monday. BHP Billiton was down 1.95% in Sydney trading.

New Zealand's S&P/NZX 50 closed down as well, by 1.3%, as local investors caught up on the global sell-off after a long weekend for the national Waitangi holiday. The small market's technology stocks followed their usual course, exhibiting vulnerability in volatility.

Global accounting firm Xero fell 7.1% in Wellington, while healthcare technology leader Orion Health Group shed 5%.

The down under dollars were weaker against the greenback, with the Aussie sliding 0.72% to AUD1.4213 and the Kiwi up by 0.31% to NZD1.5136 per dollar.

India's Sensex was 1.05% lower by the end of play, as investors in the subcontinent continued their concerns over the banking and energy sectors.

China's stock markets were set to remain closed for the rest of the week for the Lunar New Year, while Hong Kong will reopen on Thursday.