Tokyo shares slumped Monday, extending a global sell-off after top Federal Reserve officials said they backed a US interest rate hike as soon as this month. Speculation that the Fed might act as soon as this month had appeared to be off the table following a string of weak data.
But on Friday, US Federal Reserve Bank of Boston President Eric Rosengren renewed speculation when he said in a speech that higher rates were needed to prevent the economy from overheating.
Normally dovish Governor Daniel Tarullo also signalled his openness to a 2016 increase in a television interview.
Their remarks came a day after the head of the European Central Bank played down the chances of fresh stimulus, while Japanese officials have kept markets guessing about the chances of new measures.
Cautious investors drove down Tokyo's benchmark Nikkei 225 index, which ended 1.73 percent, or 292.84 points, lower at 16,672.92.
The broader Topix index of all first-section issues fell 1.54 percent, or 20.76 points, to 1,323.10.
In forex trading, the dollar stood at 102.49 yen, down from 102.69 in New York Friday.
"The issue isn't merely limited to the US," Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities, told Bloomberg News.
"What's looming here the most is that the extraordinary easing trend that we've seen globally thus far may be approaching its limits."
Investors are now awaiting a speech later Monday by another Fed governor, Lael Brainard, whose address will be the last by a bank official before a two-day policy next week.
"Markets have awoken to the fact that the days of further monetary stimulus may be numbered," said Jason Wong, a currency strategist at Bank of New Zealand Ltd.
Markets are primed for "a good old-fashioned bout of risk aversion", he added.
Toyota dropped 1.26 percent to 6,093 yen, while Sony sank 3.01 percent to 3,287 yen.
Nintendo fell 3.38 percent to 26,690 yen and Uniqlo operator Fast Retailing, a market heavyweight, slipped 2.37 percent to 35,470 yen.
Banking giant Mitsubishi UFJ Financial Group eased 2.54 percent to 532.3 yen and rival Mizuho Financial Group was down 1.17 percent at 178 yen.
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