The Nikkei 225 declined 0.63 percent, or 122.44 points, to close at 19,385.81.
South Korea's benchmark Kospi index reversed slight gains made earlier, slipping 0.13 percent to finish the session at 2,326.62, after closing lower by more than 1 percent in the previous session.
Down Under, the S&P/ASX 200 closed moderately higher, edging up 0.07 percent to end at 5,706, with falls in the utilities sub-index offset by gains in gold stocks.
Hong Kong's Hang Seng Index slid 0.05 percent by 3:11 p.m. HK/SIN after trading higher for most of the session. Mainland stocks were resilient: The Shanghai Composite gained 0.16 percent, or 5.5463 points, to close at 3,385.1293 and the Shenzhen Composite inched higher by 0.204 percent, or 4.0163 points, to end at 1,972.1382.
The U.S. on Monday called for the "strongest possible" sanctions to be imposed on North Korea a day after the North said it had tested a hydrogen bomb. President Donald Trump also spoke to South Korean President Moon Jae-in on the phone, during which he gave "conceptual approval" for South Korea to purchase billions of dollars in weapons from the U.S., Reuters said.
Meanwhile, South Korea would proceed with the rolling out an anti-missile system that had drawn China's ire, according to Reuters.
Gold prices were near their strongest levels in around 11 months, remaining supported by safe haven demand. Spot gold stood at $1,335.21 an ounce at 3:03 p.m. HK/SIN after touching as high as $1,337.98 earlier in the session.
Meanwhile, the yen — often regarded as a safe haven currency — firmed during the session, trading at 109.28 yen to the dollar compared to Monday's close of 109.70 yen.
The Korean won clawed back some losses to trade at 1,129.46 won to the dollar after going as low as 1,132.61 won to the dollar overnight. The won had traded around the 1,120 handle at the end of last week.
Stocks in Europe and Asia had closed lower on Monday, with the Nikkei 225 falling 0.93 percent. The pan-European Stoxx 600 experienced more moderate losses, erasing 0.52 percent by the market close.
Despite the move to safety, analysts said market reaction had been relatively muted.
"Risk off sentiment has hardly become evident. Moves back to safe haven or risk-off currencies, [such as] the Japanese yen and the Swiss franc, have been very much at the margin," National Australia Bank Director of Economics David de Garis said in a Tuesday morning note.
Positive economic data out of China failed to significantly lift sentiment in the region, although Chinese markets mostly traded higher.
China's Caixin/Markit August services purchasing managers' index (PMI) on Tuesday showed an increase to 52.7 from 51.5 in the previous month, Reuters reported. The August reading also showed the services sector in the country grew the fastest in three months. The official services reading came in at 53.4 in August — its lowest level since May 2016 — compared to the 54.5 seen in July.
Both Caixin and official manufacturing PMI for August released last week beat expectations, reflecting resilience in China's manufacturing sector despite concerns of an economic slowdown.
Still, optimism over China's economic outlook gave copper prices a boost on Tuesday, Reuters reported. Copper prices rose to a new three-year high after climbing as high as $6,946.50 a tonne earlier in the session.
On the energy front, U.S. crude added 0.55 percent to trade at $47.55 a barrel as demand picked up and U.S. refineries started to resume operations. Brent crude slid 0.11 percent to trade at $52.28 a barrel.
Gasoline futures fell 4.13 percent to $1.6757 a gallon, close to levels seen before Hurricane Harvey hit.
In individual stocks, Japanese automakers were mixed despite posting solid August sales figures in China. Toyota sales in the country rose 13.2 percent in August compared to a year ago, according to Nikkei Asian Review. Honda sales picked up 20.6 percent while Mazda sales climbed 8.4 percent, Nikkei said. In reaction, Toyota shares closed up 0.81 percent, Honda edged up 0.23 percent and Mazda fell 0.95 percent by the end of the session.
Meanwhile, South Korean retail names closed mostly lower. Shares of Lotte Shopping and Lotte Himart were down 1.24 percent and 4.53 percent, respectively. The moves came following news that Lotte Duty Free was weighing a decision to withdraw from Incheon International Airport in South Korea. South Korean retailers have had a difficult year owing in part to China's opposition to the deployment of an anti-missile system in South Korea.
In economic news, the Reserve Bank of Australia left the cash rate unchanged at 1.5 percent on Tuesday, as was widely expected.
The Australian dollar edged up to trade at $0.7972 at 3:08 p.m. HK/SIN, retracing losses made after the RBA's announcement.
U.S. markets will re-open on Tuesday for trade after taking a break on Monday for Labor Day.
Europe ends under pressure as N. Korea tensions weigh; Aveva shares, oil soars
The pan-European Stoxx 600 came off its highs, to end down 0.13 percent, with sectors pointing in different directions by the close. Autos outperformed other sectors, closing up 0.89 percent overall.
Looking to major bourses, Germany's DAX finished in positive territory, up 0.18 percent, while the U.K.'s FTSE 100 fell 0.52 percent and France's CAC ended 0.34 percent down.
Looking at individual stocks, Aveva agreed to combine with Schneider Electric's software business on Tuesday, creating a London-listed firm worth more than £3 billion ($3.88 billion). Aveva's shares initially rocketed up almost 30 percent on the news, before finishing trade up 25.7 percent, while shares in Schneider Electric were relatively muted, finishing up 0.26 percent.
Germany's Merck KGaA said it would consider selling its consumer health business. Its shares came off its highs yet finished trade up 2.37 percent.
Meanwhile, French telecom firm Orange and U.K. consumer goods firm Reckitt Benckiser closed near the bottom of the STOXX 600, off 2 percent and 2.7 percent respectively. This comes after Exane BNP Paribas cut its target price on Reckitt Benckiser and cuts its rating on Orange to "underperform".
Oil and gas was the second best performing sector on Tuesday, closing up 0.69 percent. This comes as oil prices posted sharp gains during trade on the back of news that refineries in the Gulf of Mexico - that were shut by Hurricane Harvey - were starting to reopen.
At the market close, Brent was up over 2 percent at $53.64 per barrel, and U.S. crude was at $48.97, up over 3 percent.
Ahead of the emergency UN meeting overnight, South Korea had reported that it had seen signs the North was preparing to launch more missiles in the near future. Consequently jitters in markets worldwide continue to rumble on, with some investors looking to safe-haven assets like the Japanese Yen.
Stateside, Wall Street stocks traded in the red on the country's first trading day of the week, as tension between North Korea and the West sent jitters down Wall Street. The Dow Jones industrial average dropped as much as 170 points before paring some losses by Europe's close.
ECB on the horizonOn the macroeconomic front, a survey released Tuesday showed that euro zone business activity remained robust in August. This was the latest evidence that appeared to show the bloc's recovery is sustaining its upbeat momentum.
Investors were also looking ahead to a meeting of the European Central Bank on Thursday, where policymakers are poised to decide whether to take action over interest rates as well as its asset purchase program.
Markets tumble as Dow closes more than 200 points lower
The Dow Jones industrial average recorded its biggest one-day drop since Aug. 17, falling 234.2 points to close at 21,753.31, with United Technologies and Goldman Sachs contributing the most to the losses. United Technologies' stock dropped after announcing a $30 billion mega-deal to buy Rockwell Collins. Boeing was also a large contributor of losses.
The S&P 500 pulled back 0.8 percent —its worst day since Aug. 17 — to 2,457.07, with financials posting their worst day since May 17. Insurers XL Group and Everest Re Group were among the biggest decliners in the index as the threat of Hurricane Irma hitting Florida increased. The S&P also snapped a six-day winning streak.
The Nasdaq composite declined 0.9 percent to close at 6,375.57 as shares of Apple, Amazon, Facebook and Alphabet all dropped.
North Korea successfully tested a hydrogen bomb that can be mounted onto an intercontinental ballistic missile. This was North Korea's sixth nuclear test since 2006 and its most powerful to date.
The U.S. stock market was closed on Monday because of the Labor Day holiday, but futures fell along with global equities. The Stoxx 600 index, which tracks a broad swath of European equities, fell 0.52 percent on Monday, while the Japanese Nikkei 225 declined 0.9 percent. On Tuesday, the Stoxx 600 index slipped 0.1 percent while the Nikkei pulled back another 0.6 percent.
South Korean stocks also fell, with the iShares MSCI South Korea Capped exchange-traded fund (EWY) sliding 2.8 percent. The ETF was also on track for its worst session since Aug. 10.
Investors around the world also increased their exposure to traditional safe-haven assets like gold and the Japanese yen. Gold futures for December delivery rose 1.1 percent to settle at $1,344.50 per ounce, around a one-year high. The yen gained 0.9 percent against the dollar to 108.82.
Tension between the U.S. and North Korea has been escalating recently. Last month, Trump said threats out of North Korea "will be met with fire and fury." Last week, North Korea launched a missile that flew over Japan before falling into the sea. That said, stocks posted solid gains last week.
"It wasn't an 'all's well that ends well' or an 'all clear signal' that empowered stocks last week as much as a sense that even as some things and situations have worsened others have actually improved," said John Stoltzfus, chief investment strategist at Oppenheimer Asset Management, in a note, pointing to strong unemployment data released last week.
Wall Street also looked ahead to debt ceiling and budget negotiations this month. If a deal is not reached, it could lead to a government shutdown, which would be catastrophic, Standard & Poor's said last week.
If the U.S. fails to raise its borrowing limit, it risks defaulting on its debt. House Speaker Paul Ryan told CNBC on Aug. 24 that the U.S. will raise the debt ceiling before it's too late.
"September has the earmarks of a crazy month thanks to Washington, the ECB, and the fact that company management gets back from vacation and thinks about Q3 and Q4 estimates," according to Steven DeSanctis, equity strategist at Jefferies. The European Central Bank (ECB) is set to meet later this week.
Investors also set their sights on U.S. tax reform. The group of six officials working on tax reform was scheduled to meet with President Donald Trump on Tuesday. This comes after Treasury Secretary Steven Mnuchin told CNBC on Thursday that the administration had a "very detailed" tax plan ready.
September has historically been one of the most volatile months for stocks. Raymond James' Saut pointed out that the Dow falls on average about 1.09 percent in September. He also said that the August-November period has historically been a difficult time for stocks in years that end in "7."