Japan's Nikkei average snapped a three-day winning streak to close down 0.7 percent on Monday as a rise in the yen hit exporters and worries about the domestic economy weighed on banks. Exporters such as Sony Corp and Toyota Motor Corp fell as the yen hit a seven-month high against the dollar after a strong US jobs report failed to soothe worries about trade and budget deficits in the United States.
There was also caution over company earnings and the economic outlook at home ahead of machinery orders and gross domestic product (GDP) data later in the week.
"Concerns have been growing that sluggish external demand has begun hurting Japan's macroeconomic growth," said Yoshihiko Kosuga, equities deputy general manager at Mizuho Investors Securities.
"Also, because of the yen's recent firmness, investors are finding it too risky to chase stocks higher after the Nikkei recently hit the 11,000 mark."
The Nikkei fell 77.94 points to 10,983.83.
It had risen 327 points or 3 percent in the previous three sessions to end above 11,000 on Friday for the first time since October 19.
The broader TOPIX index lost 0.85 percent on Monday to 1,102.71.
The yen was around 105.45 per dollar. A higher yen eats into exporters' profits when they are repatriated and makes Japanese products more expensive abroad.
Consumer electronics giant Sony, which makes about 70 percent of its sales overseas, dropped 1.05 percent to 3,770 yen and Toyota, Japan's biggest auto maker, was down 1.69 percent at 4,070 yen.
Tokyo Electron Ltd fell for a sixth straight day, losing 1.59 percent to 5,580 yen. After the close, the world's second-biggest maker of chip-making equipment cut its net profit estimate for the first half due to higher taxes, but said its recurring profit would be higher as it expected increased sales.
Trading was slow, with 1.08 billion shares changing hands on the first section, the lowest total since October 18 and down from 1.304 billion on Friday.
Decliners outnumbered gainers 1,154 to 352. In the banking sector, Mizuho Financial Group Inc, Japan's biggest banking group, lost 1.4 percent to 422,000 yen on renewed worries about its business outlook if Japan's economy slows, analysts said.
Japan's GDP is expected to have risen 0.5 percent in the July-September quarter thanks to a recovery in consumption and capital spending, a Reuters poll showed.
But economists are voicing concern that those factors may have only a temporary effect and that a slowdown may be in store later in the year due to a global economic downturn.
Japan is set to release its GDP numbers on Friday after machinery orders for September on Thursday.
Despite Monday's setback for banks, Goldman Sachs' chief strategist Kathy Matsui told an investment seminar that shares in Japanese banks were an attractive investment.
"We see average EPS (earnings per share) growth among Japan's major banks at 17.5 percent in the next five years, and their PER (price earnings ratio) is around 13 now," she said, anticipating good demand next year for the banks, which she described as "undervalued growth" stocks.
Nippon Television Network Corp tumbled 7.56 percent to 14,800 yen after the broadcaster corrected financial statements. Following the disclosure, the Tokyo Stock Exchange placed the shares on its monitoring section, saying there was a possibility the shares could be delisted.
Bucking the market trend, Takefuji Corp jumped 2.32 percent to 7,070 yen after a financial source told Reuters on Friday that the founder of Japan's consumer finance firm would let hedge funds and institutional investors buy a 34 percent stake in it for more than $3 billion.
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