Tokyo shares fell almost 3% after the market opened, the Nikkei index dropping by more than 400 points.
The decline had been expected after markets in New York and London suffered significant losses on Thursday.
Japan's central bank followed the European Central Bank in pumping money into the market to boost liquidity.
The Bank of Japan injected one trillion yen ($8.5bn; £4.2) into the financial system on Friday.
The BBC's Chris Hogg, in Tokyo, says fears over global financial institutions' exposure to bad credit in the US sub-prime mortgage market are hitting indexes hard across Asia.
Major markets in the region, including Hong Kong, South Korea and Singapore, were all down more than 3%.
Calming the markets
Central banks in several countries have been intervening in the money markets to prevent a continuing problem with US housing loans turning into a global financial crisis.
On Thursday the US's main Dow Jones index fell 387.18 points, or 2.8%, to 13,270.68. The S&P shed 3% and the Nasdaq lost 2.2%.
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European indexes had slumped earlier after BNP Paribas froze three funds, saying the market for some of the assets they contained had disappeared.
The European Central Bank injected a record $130.6bn (£64.6bn) into Europe's money markets to prevent a financial system seizure.
In the US, the Federal Reserve was reported to have taken similar action, pumping about $24bn (£12bn) into the US banking system.
And the Australian Reserve Bank also intervened to calm that country's own markets on Friday.
Analysts said that the markets would remain volatile in the near future.
"Markets are taking this latest news seriously with the risk appetite on the back foot," said David Corbell, analyst at IFR Markets.
Housing market wobble
The latest trigger for the slump was the announcement by BNP Paribas that it was suspending the three investment funds worth 2bn euros (£1.35bn) because of problems with the US sub-prime mortgage sector.
Sub-prime lenders offer loans to consumers with a poor credit history.
In recent months, the number of loan defaults has increased because of higher interest rates, raising concerns that the wobble in the housing market will affect other parts of the economy and then start hurting other nations.
The worry is that should banks make losses then it would hurt their earnings and their profitability making them less willing to fund the takeovers and buyouts that have underpinned much of the stock markets' recent gains.
The recent collapse of American Home Mortgage, the 10th largest lender in the US, has intensified those concerns.
"You're looking at the foundation of a marketplace that has imploded somewhat," said Steve Goldman, an analyst at Weeden & Co.
At the same time, banks have suddenly started charging significantly more for the money they lend to each other, signalling that they are looking to limit their risks, analysts said.
Analysts say that a credit crunch - when it becomes harder for banks, companies and consumers to get access to loans and cash to run their operations - is a serious occurrence that could lead to a recession.
The declines in the US markets came despite attempts by President George W Bush to calm market fears.
Speaking after a meeting with his top economic advisers, President Bush acknowledged there had been "disquiet" on Wall Street over the housing slump.
But President Bush said he expected the markets to focus increasingly on the underlying health of the global economy and robust US prospects.