Japanese stocks collapsed on Monday in their biggest single day rout since the 1987 Black Monday selloff, driven by last week's plunge in global stock markets, economic concerns and worries investments funded by a cheap yen were being unwound.

The Nikkei share average shed a staggering 12.4 percent as Friday's dismal US jobs data heightened worries of a possible recession, and as the yen rallied to seven-month highs versus the US dollar.

Japan's banking stocks led the rout, which pushed the Nikkei into bear market territory given its 27 percent drop from a July 11 peak of 42,426.77.

By the close on Monday, the index closed at 31,458.42 and had wiped out 113 trillion yen (US$792.32 billion) of that peak market value.

"The rapid move in the yen is putting downward pressure on Japanese equities, but it's also driving an unwind of a major carry trade – investors had leveraged up by borrowing in yen to buy other assets, chiefly US tech stocks," said Kyle Rodda, a senior financial market analyst at Capital.com in Melbourne.

"We are basically seeing a mass deleveraging as investors sell assets to fund their losses."

The Nikkei lost 4,451.28 points on Monday, its biggest ever one-day drop, eclipsing the 3,836.48 points it lost on Oct 20, 1987 when the Black Monday global stock market crash hit Japanese markets.

US stocks sold off for a second straight session on Friday, and the Nasdaq Composite index confirmed it was in correction territory after a soft jobs report stoked fears of an oncoming recession and expectations for a big Federal Reserve rate cut in September.

"I think the US economic slowdown worries were too much, but the market did turn nervous after the Bank of Japan's rate hike as they thought the domestic economy is not strong enough to justify the rate hike," said Tomochika Kitaoka, chief equity strategist at Nomura Securities.

The yen was last up 2.5 percent at 142.96 per dollar, and has risen 14 percent in less than a month, driven in part by the Bank of Japan's interest rate rise last week and an unwinding of yen-funded carry trades.

The banking sector slumped 17 percent to become the worst sector among the Tokyo Stock Exchange's 33 industry sub-indexes.

The broader Topix fell 12.2 percent to 2,227.15. (Reuters)