The Nikkei average fell for a third session on Wednesday, posting its biggest one-day fall in over a month as technology and auto stocks succumbed to profit- taking due to concerns higher oil prices could slow global economic growth.
Toshiba Corp fell after US-based Lexar Media Inc said it had filed a trade complaint against the electronics conglomerate for infringement of intellectual property rights
The Nikkei was down 1.47 percent or 255.58 points at 17,162.55. It was its biggest one-day percentage fall since March 3. The average hit 17,563.37 on Friday, its highest close since July 2000, having risen nearly 2,000 points from early March with mining, brokerage and non-ferrous metals stocks leading the gains.
The TOPIX index was down 1.54 percent at 1,742.89.
Increased tensions over Iran's nuclear programme have helped send oil prices above $69 a barrel closer to the all-time $70.85 high hit last August.
Higher oil prices may hurt consumer spending and eat into corporate profits, analysts say, although stronger demand for oil and other natural resources, especially from China and other developing countries, is behind the recent gains in commodities prices.
"The Tokyo market has risen too far too fast, so it's reasonable to take a breather. A setback in overseas markets gave a cue for the selling," said Yoshihisa Okamoto, senior vice president at Fuji Investment Management.
Okamoto said a combination of higher oil prices and geopolitical or other risks have from time to time prompted a change in global capital flows, resulting in a sell-off in equities.
"In the past, these kinds of market corrections were short-lived and funds that fled from equities returned in due course. But it is not yet clear whether that is happening again this time," he said.
On the other hand, Hiroshi Arano, an adviser at Dai-Ichi Kangyo Asset Management, said a fall - not a rise - in oil prices would be a bigger risk for equities although the chances of this happening look slim for now.
"A fall in oil prices means a slowdown in global demand contrary to expectations, and I think that is far riskier for the global markets," he said.
Hitachi Ltd, Japan's largest electronics conglomerate, lost 2.5 percent to 848 yen.
No 2 Toshiba was down 2.6 percent at 708 yen. Hitachi President Kazuo Furukawa said in an interview with Reuters on Wednesday that the company aims for higher sales and profit for the current business year, by pressing ahead with cost cuts to achieve its target to turn around its struggling hard disk drive, flat TV and display businesses.
Toyota Motor Corp, the world's second-biggest auto maker, fell 1.8 percent to 6,700 yen. Toyota hit a lifetime high of 6,880 yen on Tuesday. Mitsubishi UFJ Financial Group Inc, the most active issue by value, was down 3.1 percent at 1.85 million yen. Mitsubishi UFJ, the world's biggest banking group by assets, has fallen together with a slide in the Tokyo market. The stock hit a lifetime high of 1.95 million yen on Friday.
A seeming correction in the market's bull run hurt brokerage shares, with Japan's No 1 brokerage Nomura Holdings Inc falling 1.3 percent to 2,685 yen.
Earnings concerns following Tuesday's profit warning by Sankyo-Tateyama Holdings Inc, Japan's second-biggest maker of aluminium construction materials, took a toll on its peers. Sankyo-Tateyama sank 4.3 percent to 290 yen.
The company, headquartered in Takaoka city, northern Japan, on Tuesday lowered its group net profit forecast for the year to May 2006 by almost 60 percent due to higher material costs.
The metal products sector subindex IMETL.fell 2.7 percent, the worst performer among 33 industries on the Tokyo bourse's first section.
But Daiichi Sankyo Co Ltd, Japan's second-largest drug maker, rose 1.3 percent to 2,840 yen after earlier hitting a lifetime high of 2,910 yen.
Lehman Brothers in a report on Wednesday raised its investment rating on the stock to "overweight" from "equal weight", saying the company's earnings are expected to bottom in the year to March 2007.
Trading volume rose to 1.96 billion shares, yet lower than last year's daily average of 2.07 billion. Decliners outnumbered gainers 1,416 to 217.