Japanese shares fell on Wednesday after Iran launched missile attacks on US forces in Iraq in retaliation for a US drone strike, but ended above session lows amid a lack of reports of casualties.
The Nikkei index ended down 1.57% at 23,204.76. The industrial and consumer discretionary sectors faced broad-based declines as shares of industrial robot maker Fanuc Corp and apparel retailer Fast Retailing Co Ltd fell.
In the morning session, Japanese stocks tumbled more than 2% to reach the lowest since Nov. 21, 2019.
Shares pared losses in the afternoon session, however, after US President Donald Trump said in a tweet that "all is well". One source told Reuters early indications were of no US casualties.
Iran launched a missile attack on US-led forces in Iraq, hours after the funeral on Tuesday of an Iranian commander whose killing in a US drone strike has stoked fears of a wider war in the Middle East.
Tehran fired more than a dozen ballistic missiles from Iranian territory against at least two Iraqi military bases hosting US-led coalition personnel, the US military said on Tuesday.
Iran's Revolutionary Guards confirmed that they fired the rockets in retaliation for last week's killing of Qassem Soleimani, according to state TV.
"Investors are unwinding long positions built up last year," said Kiyoshi Ishigane, chief fund manager at Mitsubishi UFJ Kokusai Asset Management Co in Tokyo.
"There is concern about what comes next in the Middle East. Another concern is oil prices will skyrocket at a time when Japan's manufacturing sector is weak, which is a negative for the corporate sector."
There were 213 decliners on the Nikkei index against 11 advancers on Wednesday.
The largest percentage losses in the index were maritime shipper Kawasaki Kisen Kaisha Ltd down 5.93%, followed by property developer Tokyu Fudosan Holdings Corp down 4.11%, and chemicals maker Tosoh Corp losing 4.07%.
The largest percentage gainers in the index were IT services provider NEC Corp up 2.21%, followed by industrial equipment maker Yokogawa Electric Corp gaining 1.99%, and steelmaker JFE Holdings Inc up by 1.01%.
Major exporters like automaker Toyota Motor Corp and construction equipment maker Komatsu Ltd fell as the yen briefly jumped to a three-month high. A stronger yen tends to weigh on exporters' earnings.
Oil and natural gas developer Inpex Corp and oil refiner JXTG Holdings Inc ended higher but pared gains after a spike in oil futures started to fade.
US crude, which surged more than 4% as the Iranian attacks unfolded, traded up 0.93% at $63.28 a barrel around the time Nikkei trading closed.
Higher oil prices could raise costs for end users but boost earnings for producers and refiners.
The broader Topix index fell 1.37% to 1,701.40.
The volume of shares traded on the Tokyo Stock Exchange's main board was 1.27 billion, compared to the average of 1.11 billion in the past 30 days.