Tokyo stocks snapped a three-day winning streak Tuesday, after the Bank of Japan held back from offering more stimulus as policymakers gauge the impact of negative interest rates. Governor Haruhiko Kuroda and BoJ policymakers held fire after their surprise move in January to effectively charge banks for parking money with the central bank faced criticism for being a desperate bid to stir growth.
Economists had largely expected the decision, although some speculated the BoJ will be forced expand its monetary easing programme in the future. Investors shrugged off the news, and turned their attention to a two-day US Federal Reserve meeting that starts later in the day.
"This is not a negative and not something that will derail the market's recent trend in the risk-on direction," Yusuke Kuwayama, a portfolio manager at Tokio Marine & Nichido Fire Insurance, told Bloomberg News.
"The focus now is on tomorrow's FOMC," he said, referring to the conclusion the Federal Open Market Committee meeting.
The benchmark Nikkei 225 index at the Tokyo Stock Exchange ended down 0.68 percent or 116.68 points to 17,117.07. The Topix index of all first-section shares fell 0.57 percent, or 7.87 points, to 1,372.08.
The Japanese currency strengthened against the dollar, which bought 113.42 yen against 113.78 yen in US trading.
Investors and analysts are in general not expecting the Fed to hike rates this week, but their meeting could offer fresh clues to the central bank's outlook for the world's top economy.
"Fundamentally, investors are trying to see where US and Japanese monetary policy will be going," Toshihiko Matsuno, chief strategist at SMBC Friend Securities, told Bloomberg. US equity markets ended a lacklustre session nearly flat on Monday as a retreat in oil prices hurt petroleum-linked stocks.
Among major shares in Tokyo, casual fashion chain operator Fast Retailing gave up earlier gains and ended down 0.33 percent to 36,270 yen. Mobile carrier SoftBank also pared gains but managed to stay above water, adding 0.39 percent to 5,928.
Sony edged down 0.16 percent at 2,794 yen after it announced a $750 million deal to take full control of Sony ATV Music Publishing by buying the 50-percent share owned by the estate of late pop superstar Michael Jackson.