The Nikkei share average ended 0.7% lower to 21,535.25. Japanese markets were closed on Monday for a national holiday.

On Monday, China released data showing its economic growth slowed to 6.2% in the second quarter, its weakest pace in at least 27 years, as demand at home and abroad faltered in the face of mounting U.S. trade pressure.

While more upbeat June factory output and retail sales offered signs of improvement, some analysts cautioned the gains may not be sustainable, and expect Beijing will continue to roll out more support measures in coming months.

Traders said that a slowdown in the world's second-largest economy would make the performance gap between Japanese equities and its peers even wider as Japan has little policy ammunition left to support a faltering economy.

There are worries Japan's economy will remain underpowered, and slow further, as the U.S.-China row hurts exports.

"Markets whose central banks step up monetary easing tend to outperform these days," said Norihiro Fujito, a chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

"While the Federal Reserve and the European Central Bank are all loosening monetary policies to support their economies, the Bank Of Japan is not left with much choices. Foreign investors are aware of this so they are leaving Japan to shift their money to the U.S. and emerging markets."

The Nikkei has gained 7.6% this year, while the S&P index  soared 20% and the European pan-region benchmark index  gained 11%.

Investors sold futures, triggering index-heavy names such as SoftBank Group, FamilyMart and Fanuc Corp  to fall 1.2%, 2.7% and 1.5%, respectively.

But automakers outperformed after the Nikkei business daily reported that the Chinese government is set to shift its automotive strategy to rely more on hybrid vehicles.

The Nikkei said the move is part of the country's efforts to clean up the environment, instead of centring solely on electric vehicles, a development likely to work in favour of Japanese automakers such as Toyota Motor and Honda Motor.