The Nikkei index closed 0.21% lower at 27,473.10 points, led by consumers stocks as weakening factory data hinted that the world's third largest economy could still be plagued by falling demand and cost pressures.
The broader Topix index turned negative in the afternoon trade to end 0.11% lower at 1,997.46 points. The benchmark failed to hold on to its intra-day high of 2,003.46, last seen in end-November. The declines follow broader weakness in Asian markets and U.S equity futures as investors weigh the possibility of the Federal Reserve tightening its policy further to cool inflation. U.S markets were closed on Monday for President's Day holiday.
The focus will likely remain on monetary policy expectations in the United States and Japan for this week, Naka Matsuzawa, chief Japan macro strategist at Nomura Securities, said in a note.
Incoming Bank of Japan Governor Kazuo Ueda is scheduled to testify before parliament on Friday, the same day the country is due to release data for January inflation, which is likely to have accelerated to a new 41-year high, above 4%, according to a Reuters poll.
Top losers in the Nikkei on Tuesday included department stores J. Front Retailing Co Ltd and Takashimaya Co Ltd , down 2.9% and 2.6%, respectively.
Top gainers included tire maker Yokohama Rubber Co Ltd and paper firm Nippon Paper Industries Co Ltd , up 5.4% and 4.90%, respectively. Overall, gainers beat losers by 119 to 96, while 10 remained unchanged. The biggest percentage losers in the Topix were ball bearing manufacturing firm Tsubaki Nakashima Co Ltd and real estate firm Land Co Ltd , down 12.7% and 10.0%, respectively. Gainers in the index included industrial machine firm Altech Co Ltd and chemicals company Soda Nikka Co Ltd , up 16.2% and 12.1%, respectively. Hosiden Corp shares closed 7.5% higher after City Index Eleventh Co announced it had bought a 5.3% stake in the Japanese electronics maker. Gainers in the Topix outpaced losers by 1,185 to 867, with 111 remaining unchanged.
Meanwhile, the yen weakened 0.11% to 134.38 per dollar. Data released earlier on Tuesday showed Japan's manufacturing activity contracted for a fourth month in a row. Its service-sector activity has expanded for six months following further relaxation of COVID-19 restrictions.
The government last month said it would downgrade COVID-19 public health classification in May. (Reporting by Yantoultra Ngui Editing by Vinay Dwivedi)
