The Nikkei share average fell 1.1 percent on Wednesday, marking its lowest close in a week as fresh worries about the US economy hit exporters and a brokerage downgrade on Tokyu Land Corp triggered a sell-off in property shares.
Financials, including top lender Mitsubishi UFJ Financial Group, weighed on the market after Washington Mutual Inc, the largest US savings and loan firm, warned of a large quarterly loss, deepening concerns about the financial crisis.
Astellas Pharma Inc dropped 3 percent after it lost US patent protection on transplant drug Prograf, while Obayashi Corp tumbled more than 9 percent after the large general contractor slashed its forecast for operating profit in the fiscal year just ended.
"Even if you suppose the worst is over for financials, the worst time for the economy and corporate earnings is still to come," said Soichiro Monji, chief strategist of the equity management department at Daiwa SB Investments. "Profit-taking and the forming of new short positions became particularly apparent in the afternoon session. The recent gains were a mere technical rebound."
The Nikkei shed 138.54 points to 13,111.89, its lowest finish since April 1. The benchmark remains 12 percent above a trough hit in mid-March. The broader TOPIX index declined 1.5 percent or 19.79 points to 1,262.90, also its lowest close since April 1.
Tuesday's weakness on Wall Street left investors wondering whether a rebound in the financial sector since mid-March had staying power through next week, when J.P. Morgan Chase, Merrill Lynch & Co Inc and Citigroup will report first-quarter results.
Market sentiment soured after the minutes of the Federal Reserve's latest meeting stoked fears of a recession in a key market for Asian exports, while weak outlooks from US chip-related firms fuelled concerns about business and consumer spending.
Japan's Advantest Corp shed 4 percent to 2,625 yen and Tokyo Electron Ltd gave up 3 percent to 5,930 yen. Honda Motor Co Ltd lost 2.6 percent to 2,865 yen. Tokyu Land tumbled 8.6 percent to 642 yen after Credit Suisse cut its rating to "underperform" from "neutral", citing a weak outlook for the property market due to an economic slowdown.
Realtor Mitsui Fudosan Co Ltd fell 2.6 percent to 2,250 yen and Sumitomo Realty & Development, a real estate developer, dropped 5.7 percent to 1,986 yen. The real estate subindex slid 3.1 percent. Financials also weighed on the market. Japan's biggest brokerage, Nomura Holdings Inc, lost 2.7 percent to 1,569 yen, while top lender Mitsubishi UFJ fell 2.7 percent to 942 yen and No 2 bank Mizuho Financial Group declined 2.5 percent to 393,000 yen.
Shares of Astellas Pharma fell 3 percent to 4,170 yen, and Obayashi lost 9.4 percent to 406 yen. Trade was a little slow on the Tokyo exchange's first section, with 1.8 billion shares changing hands, compared with last week's daily average of 1.9 billion. Decliners outnumbered advancers by more than 3 to 1.
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