The Nikkei index plunged by 7.3 per cent on the back of worse than expectated figures released for the manufacturing industry in China.
After growing by 50 per cent since the turn of the year, the sudden dip in the index is expected to have an impact on markets all over the world today (May 23rd).
European indexes have opened between two and three per cent down and this has been replicated in countries such as Australia.
"Volatility is in full force today, and nowhere more so than Japan," said Chris Weston, chief market strategist at IG Markets.
The Nikkei had been up by two per cent earlier in the day, reaching fresh five-and-a-half year highs as the index seemed to be continuing its steady growth of recent months.
But the contraction in Chinese manufacturing activity led to investors taking their money out of the market and several of the Nikkei's largest companies were down by more than 13 per cent.
Yesterday, strong gains from Sony had pushed the Nikkei to a new five-and-a-half year high of 15,564.90.
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