Meanwhile, yen appreciation to upper 130 level against greenback as well as concerns about China-US relations after reports of a possible visit by US House Speaker Nancy Pelosi to Taiwan also weighed down sentiments.
At closing bell, the 225-issue Nikkei Stock Average index fell by 398.62 points, or 1.42%, to 27,594.73. The broader Topix index of all First Section issues on the Tokyo Stock Exchange dropped by 34.62 points, or 1.77%, to 1,925.49.
Stocks were in negative territory throughout the day as lackluster U.S. manufacturing data for July, released Monday, fueled fears of a recession in the world's largest economy. Sentiments also weighed down ahead of Pelosi's potential arrival in Taiwan during her trip to Asia. China, which regards Taiwan as a renegade province awaiting reunification with the mainland, by force if necessary, has warned that Pelosi's visit would escalate bilateral tensions.
Shares of exporter issues such as auto and technology makers declined due to stronger yen. Among automakers, Toyota slipped 2.6%, Honda slid 0.8%, and Nissan was down 2.3%. Sharp dipped 1.2% and Panasonic fell 1.6%.Industrial robot maker Yaskawa Electric tumbled 3.7%, while its peer Fanuc dropped 2.2%.
ANA Holdings shares advanced 0.3% after it posted a quarterly net profit for the first time since the coronavirus pandemic began.
Shares of Japan Airlines fell 1.2% after it logged a net loss of 19.56 billion yen for April-June.
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CURRENCY NEWS: Japanese yen appreciated against greenback as investors fled to the perceived safety of the Japanese currency ahead of Pelosi's potential arrival in Taiwan during her trip to Asia. At 5 p.m., it fetched 130.82-84 yen compared with 131.55-65 yen in New York and 132.55-56 yen in Tokyo at 5 p.m. Monday.
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