Japan's Nikkei average fell 1.5 percent on Tuesday to hit its lowest close since June 4 as investors worried about corporate earnings in the quarters ahead, particularly among technology firms.
Chip firms and firms involved in the liquid crystal display (LCD) sector were sold ahead of quarterly earnings, reflecting worries among investors about a potential fall in demand for semiconductors and a possible supply glut in the LCD industry.
That concern pushed shares in Hoya Corp, a top maker of components used to make chips and LCDs, down 0.63 percent even though the company reported record earnings for the April-June quarter thanks to strong sales.
Many other technology giants including Sony Corp report results next week.
The benchmark Nikkei ended down 1.55 percent at 11,258.37 after rising a meagre 0.15 percent last week. The Tokyo market was closed on Monday for a national holiday.
The broader TOPIX index was down 1.01 percent at 1,139.53.
Trade volume in Tokyo fell to 1 billion shares, the lowest daily total since July 12.
Decliners outpaced gainers 1,088 to 376.
Analysts said investors were looking beyond the Olympics in August and were afraid that inventories of digital electronics products would build up, leading to cuts in production.
Investors were also looking beyond the US presidential election in November amid concerns that the outcome might lead to the end of tax breaks and other policy measures to boost consumer spending in the US, Japan's main export market.
One fund manager said, however, the sell-off here was overdone and did not really reflect the domestic business outlook.
Advantest Corp, Japan's top maker of semiconductor testing devices, led the chip sector down after figures on Monday on North American orders for equipment used to produce microchips showed weaker demand in June, jolting investor confidence further after Merrill Lynch's downgrade of the chip sector this month.
Advantest dropped 4.73 percent to 6,240 yen and Tokyo Electron Ltd, the world's second biggest maker of chip-making equipment, slid 4.59 percent to 5,200 yen.
Nitto Denko Corp a maker of LCD materials, sank 6.19 percent to 4,850 yen, after Merrill Lynch said that it had downgraded Taiwan's AU Optronics, the world's number three maker of large LCDs, and was negative on the whole sector.
Sharp Corp, the world's biggest maker of LCD televisions, fell 2.19 percent to 1,606 yen and consumer electronics giant Sony lost 2.01 percent to 3,910 yen.
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