A soaring yen and the economic slowdown have hit share prices
Japan's stock market had its worst year on record in 2008, with the Nikkei share index losing 42% of its value.
Share prices have plunged due to the global financial crisis and the soaring yen, which has made Japanese products more expensive.
A deepening recession in Japan has knocked confidence in many businesses, especially those which rely on exports.
Firms such as Sony, Toyota and Panasonic have seen demand for their goods fall both in Japan and abroad.
The problems have led to many foreign investors withdrawing their money from the Japanese market in the hope of finding better returns elsewhere.
The last time in its 58-year history the Tokyo stock exchange suffered a fall of similar magnitude was 1990, at the beginning of a prolonged economic slump, when the Nikkei fell 39% during the year.
The key Japan market did end 2008 with a modest rally - the Nikkei was up 1.3% on Tuesday - but that has done little to alter gloomy forecasts about the coming year.
"This year was a total disaster, nobody expected it to fall as much as it did," said Tsuyoshi Nomaguchi, at Daiwa Securities in Tokyo.
Japan, which is the world's second-largest economy has long relied on exports to drive growth, but an ever-increasing reliance on overseas demand proved to be a major weakness this year.
Plummeting global demand for Japanese cars and gadgets took a heavy toll on exporters, many of which have slashed profit forecasts, scaled back production and cut jobs.
A stronger yen, which has gained about 20%, has eroded overseas profits, adding to their woes.
Toyota, which is Japan's top carmaker, last week forecast its first operating loss in 71 years. The company's shares lost more than half their value in 2008.
Shares in Sony fell more than 60% during the year. The Tokyo-based maker of the Walkman and PlayStation is especially vulnerable to the strong yen as about 80% of its sales are outside Japan.
Akira Ishida, of Chuo Securities in Tokyo, said that Japanese car makers in particular had endured a "very tough year" but said next year would be "even tougher".
Japan would see more layoffs and steeper declines in corporate profits in 2009, he added.
"Since October, we have been exposed to harsh winds that we have rarely experienced," said Tokyo stock exchange president Atsushi Saito in the ceremony to close the year's trading.
"In the long history of mankind, there have been many harsh economic slumps but they have been overcome. We want to make the next year a year in which we will move towards the future in a constructive manner."
NIKKEI 225 INDEX: JAN-DEC 2008