The Nikkei average fell 1.1 percent to its lowest close in more than two weeks on Monday as Softbank Corp extended losses after a brokerage cut its target share price and recent gainers such as Canon Inc succumbed to profit-taking.
The yen hit a record low against the euro on Monday at 149.95 on electronic trading platform EBS, extending falls after last week's soft consumer price data bolstered expectations the Bank of Japan will not raise interest rates anytime soon. While a halt to rate increases curbs corporate fund-raising costs, a weaker yen also favours exporters as it inflates profits they earn abroad when repatriated home. But shares of major exporters such as Canon and Toyota Motor Corp had been bought last week when the euro neared that level.
"It's good to see that upward pressure on interest rates is on hold," said Toru Kitani, senior investment manager at Sompo Japan Asset Management. "But we've experienced a market rise in the past four weeks and it looks as if it's time to pause.
"A slide in Softbank shares again was bad news in particular for retail investors," he added.
Trade was slow as investors looked ahead to US economic data this week. The data, including revised April-June gross domestic product and monthly employment figures, are eagerly awaited after weaker home sales last week.
Japan's household spending and jobs data are due on Tuesday and industrial output data is released on Thursday.
The Nikkei ended 176.07 points lower at 15,762.59, its lowest close since August 11. The broader TOPIX index fell 1.21 percent to 1,600.25. The Nikkei hit a three-month closing high of 16,181.17 on August 22. Some analysts said a break below the 200-day moving average, which stood at 15,828 as of Friday's close, worsened the outlook on technical charts.
Shares in Softbank sank 5.6 percent to 2,020 yen, extending losses from a fall of nearly 10 percent on Friday. Lehman Brothers last week slashed its target price on the telecoms and Internet firm to 900 yen from 1,125 yen, citing Softbank's accrued debt. Trade volume fell to its lowest level in two weeks, with 1.37 billion shares changing hands on the Tokyo exchange's main board. Decliners beat advancers by a ratio of nearly eight to one.
Koji Muneoka, vice president of sales and trading at J.P. Morgan Securities Asia, said sluggish trade helped exaggerate share price movements, resulting in a wide 260-point range for the Nikkei on Monday. "Few people are brave enough to take long-term positions now, for fear that the US may be heading for a hard landing," he said.
Canon, the world's biggest digital camera maker, was down 1.6 percent at 5,510 yen. Toyota, the world's second-biggest auto maker, fell 0.5 percent to 6,220 yen. Hokuetsu Paper Mills Ltd fell 2.3 percent to 758 yen as news on Monday that it is in talks to supply South Korea's Kyesung Paper group dealt a further blow to a hostile take-over attempt by Oji Paper Co.
Oji Paper, Japan's largest paper maker, launched a tender offer for sixth-ranked Hokuetsu earlier this month in the first hostile take-over bid by a major Japanese manufacturer for a competitor.
But it appears increasingly likely that Oji's bid will fail as more than two-thirds of Hokuetsu's shareholders oppose the $1.4 billion offer, sources told Reuters last week. Hokuetsu shares were already below Oji's offer price of 800 yen per share.
Nippon Steel Corp rose 1.2 percent to 495 yen after a report in business daily Nihon Keizai that Japan's largest steel maker plans to pay an interim dividend for the first time in 14 years.
A Nippon Steel spokesman said the company is discussing an interim-dividend payment but no decision has been made. It will reveal first-half and full-year forecasts on September 7. Shares of Toshiba Corp gained 1 percent to 783 yen after Microsoft Corp said the Japanese firm would manufacture its Zune portable music player, the software giant's answer to Apple Computer Inc's market-leading iPod.