Japan's Tokyo stock market took a sharp hit on Friday, with the Nikkei 225 index closing down 1.9% at 64,011.34 points. Sentiment was broadly pressured by weak overnight U.S. equities and rising inflation concerns, with the Nikkei plunging more than 3% at one point during the session.

Expectations of tighter Federal Reserve policy intensified as U.S. August producer price data came in stronger than expected, pushing Treasury yields higher and dragging U.S. stocks lower across the board overnight. Fed Chair Kevin Warsh also signaled a possible departure from forward guidance, reigniting market bets on further rate hikes and keeping investors highly vigilant ahead of upcoming U.S. inflation figures.

Meanwhile, escalating geopolitical tensions between the U.S. and Iran continued to disrupt energy supply chains, sending international oil prices surging once again and heightening imported inflation pressures for Japan, a major resource importer. With U.S. tech stocks weakening and macro liquidity tightening expectations building, chip stocks that had previously rallied sharply saw a collective pullback, serving as the main drag on today's Nikkei decline.