Japanese stocks plunged into a bear market amid a slump in equities across Asia as investor concerns over the global economic outlook outweighed technical signs that a China-fueled rout has gone too far.
The Topix index sank 3.7 percent to 1338.97 at the close in Tokyo, taking its loss since a high on Aug. 10 to 21 percent. The Nikkei 225 Stock Average fell 3.7 percent to 16,416.19, also down 21 percent from its recent peak on June 24. Concern over China's ability to manage a transition to more sustainable growth has driven down global equities in 2016.
The International Monetary Fund cut its world expansion outlook.
"Everything is falling," said Tsutomu Yamada, a market analyst at Kabu.com Securities Co. in Tokyo.
"It's difficult for the market to rebound unless oil or something else truly hits bottom.
Whether it's oil, the dollar-yen, U.S. shares, Hong Kong or Shanghai shares - something has to rebound."
The Nikkei 225 last entered a bear market in June 2013, after plunging 20 percent in less than a month. The gauge soon rebounded, rallying 31 percent from its low on June 13, 2013, through the end of that year.
"We'll continue to see a tug-of-war between nervous sentiment and technical indicators showing that falls have gone too far," Chihiro Ohta, general manager of investment information at SMBC Nikko Securities Inc. in Tokyo, said.
"At the root of the selling we've seen this year has been the imbalance of oil supply and demand, so until the oil price moves calm down, the stock market will struggle."
The Topix's 14-day relative strength index fell to 24.35, below the level of 30 which some traders say indicates that shares will rise. When the measure slid to 24.4 on Jan.
12, the Topix jumped 2.9 percent the next day.
Oil explorers led declines among the 33 Topix industry groups as crude continued to fall, with Inpex Corp. sinking 6.2 percent to its lowest close since 2006. Athletic-wear maker Asics Corp. sank 7 percent, the most in two months, after Haitong Securities Co. cut its rating on the stock.
Exporters dropped as the yen strengthened 0.7 percent to 116.80 per dollar, weakening the outlook for overseas earnings. Toyota Motor Corp. slumped 3.4 percent to be the biggest drag on the Topix, while Sony Corp. lost 8 percent to lead declines on the Nikkei 225.
Only two stocks gained on the Nikkei 225, while 48 dropped for each that fell on the broader Topix.
The MSCI All-Country World Index rose 0.5 percent on Tuesday, paring its 2016 loss to 8.7 percent. E-mini futures on the Standard & Poor's 500 Index lost 1.5 percent after the underlying market added less than 0.1 percent on Tuesday as it reopened following a holiday.
U.S. crude extended it drop from the lowest closing price in more than 12 years after the International Energy Agency said the global oil market could "drown in oversupply."
West Texas Intermediate futures sank 3.4 percent to $27.50 a barrel.
Oil's selloff, which has dragged crude prices down by 25 percent this year, and slowing growth in China have ignited a wave of volatility through global financial markets in 2016, pushing indexes from China and Japan to Europe close to bear markets.
The global economy will expand 3.4 percent this year, down from a projected 3.6 percent in October, the IMF said in a quarterly update to its World Economic Outlook.
The Washington- based fund also cut its forecast for growth in 2017 to 3.6 percent, down from 3.8 percent three months ago.
Speculation is mounting that China may boost stimulus measures after a report on Tuesday showed gross domestic product in the world's second-largest economy expanded 6.9 percent in 2015, just shy of the government's 7 percent target, and the least since 1990.