TOKYO: Tokyo's key Nikkei index sank more than three percent in early afternoon trade after US Fed Chair Jerome Powell signalled an interest rate hike is likely in March.

The benchmark Nikkei 225 index opened higher but later plummeted 3.26 percent or 881.77 points to 26,129.56, while the broader Topix index lost 2.83 percent or 53.55 points to 1,838.30.

US stocks stumbled on Wednesday after Powell's speech cemented the central bank's policy pivot towards fighting inflation, setting up an end to the era of easy money that fuelled Wall Street's record-setting run during the pandemic.

Tokyo stocks close lower ahead of Fed decision

In Tokyo, "risk-averse sales, especially among growth stocks, extended falls due to caution over US monetary policy," Okasan Online Securities said in a note.

Daiwa Securities added that "falls in some earnings-related shares are contributing to a decline in the indexes".

Market heavyweights were down, with SoftBank Group plunging 8.99 percent to 4,692 yen and Uniqlo operator Fast Retailing falling 2.26 percent to 66,090 yen.

Motor specialist Nidec dropped 5.20 percent to 9,679 yen after it announced a lower-than-expected operating profit for the third quarter to December.

Tokyo Electron, which produces tools to build semiconductors, tumbled 4.20 percent to 54,040 yen.

Industrial robot maker Fanuc rose 3.00 percent to 22,830 yen, however, after it revised up its full-year earnings forecast.

The dollar fetched 114.65 yen in afternoon trade, against 114.64 yen in New York late Wednesday.