The Nikkei 225 index closed down 2% at 18,070.21. The dollar fell against the yen following the Fed’s decision to keep its interest rates unchanged, which hit shares in Japanese exporters.
Shares in Toyota and Honda dropped 1.4%, while Panasonic was 2.1% lower.
A stronger yen against the dollar affects exporters, as it makes their goods more expensive to sell overseas.
The Fed’s decision to hold interest rates also renewed concerns about the strength of the global economy.
The US central bank said worries over the global economy, particularly China, had influenced its decision not to raise rates.
US shares saw choppy trade after the decision, with both the Dow Jones and S&P 500 closing lower.
Chinese shares were mixed after government data showed that property prices had shown some signs of recovery.
New home prices rose for a fourth consecutive month in August, up 0.3% from the previous month, but were down 2.3% from a year ago.
The property sector accounts for 15% of China’s economic growth, so even minimal gains have a positive impact on the world’s second largest economy.
The Shanghai Composite index ended 0.4% higher at 3,097.92, while Hong Kong’s Hang Seng index closed up 0.3% at 21,920.83.
In Australia, the S&P/ASX 200 index erased earlier losses to end up 0.6% at 5,178.50.
South Korea’s benchmark Kospi index finished 1% higher at 1,995.95.
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