Asia report: Japan stocks hit lowest level since 2014

Stocks in Japan hit their lowest levels since 2014 on Wednesday, as investors in the region remained worried about the Federal Reserve's interest rate plans, and the general health of the global banking sector.

The Nikkei Stock Average closed down 2.31% at 15,713.39. It followed a 5.4% loss on Tuesday, which was the largest in percentage terms since June 2013.

At one point during trading, Tokyo managed to negate all the gains it had made since the Bank of Japan embarked on a controversial easing policy in October 2014.

Asian markets appeared to continue their selloff as a response to concerns that the global banking sector was running out of options to support growth.

Japanese banks led the losses on Monday, with Mitsubishi UFJ Financial Group losing 7.08% and Mizuho Financial Group 5.4%. Investors were still sheltering under the yen, which traded slightly up off Tuesday's record strengths on Wednesday.

It was last 0.11% stronger against the greenback, at JPY 114.98 per dollar.

Despite several years of loose monetary policy, the global economy - in particular Japan - was yet to exhibit significant signs of strength. While equities and commodity markets have revelled in the loose policies of recent years, analysts believe there remained the possibility that a tightening by the Fed could cause the opposite effect.

The Bank of Japan has adopted a negative interest rate policy in January in a bid to boost inflation and economic activity, but the move was only raising questions about profitability on the banking sector amid slower growth.

"The BOJ decision is backfiring. There has been a lot of stimulus by the central bank ... its tools are increasingly looking limited", said Aberdeen Investment Management assistant investment manager Kei Okamura.

There was also concern that corporate profits were relying on the exchange rate to drive up their numbers since Prime Minister Shinzo Abe took power.

"There are some concerns that if that starts to reverse, we could go back to square one", said Fukoku Mutual Life Insurance general manager of equities Ichiro Yamada.

Investors appeared to believe Asian markets were yet to reach the bottom of the trough, with low crude prices also creating bad debt in the banking system.

"Until turmoil eases overseas, it is hard to expect a market recovery," said Ichiyoshi Investment Management chief fund manager Mitsushige Akino.

Elsewhere, Australia fell into a bear market, with Sydney's S&P/ASX 200 down 1.17% at 4,775.70. Energy stocks particularly suffered following another overnight slump in oil prices.

The benchmark was now down more than 20% from the high it hit last April.

Antipodean banks also followed the lead of their Japanese counterparts, with National Australia Bank losing 1.93% and Australia & New Zealand Banking Group dipping 1.62%.

After oil futures fell as low as $27.94 during US trading overnight, prices recovered slightly after Asian trading. Brent crude was last up 2% to $30.95 per barrel, and West Texas Intermediate was up 2.07% to $28.53.

In Wellington, the S&P/NZX 50 managed to claw back a fraction of its earlier losses, closing down 0.9% to 6,019.49. The country's burgeoning technology sector was again hit the hardest, with accounting software developer Xero down 3.9% and Orion Health Group down 2.1%.

New Zealand's tech sector was particularly exposed to the US, analysts said, with a core part of its value derived from its future growth potential in offshore markets, given the local market's small size.

The New Zealand dollar was 0.43% stronger against the USD, at NZD 1.5006. The Aussie also clawed towards the greenback by 0.67%, to AUD 1.4050.

Mainland Chinese markets remained closed, and would for the rest of the week for the Lunar New Year holiday. Traders in Hong Kong were set to return slightly earlier, on Thursday.