Japan's Nikkei average is expected to open lower on Tuesday as investors remain cautious ahead of the German constitutional court's ruling over the legality of the European bailout fund on Wednesday and the U.S. Federal Reserve policy meeting this week.
The Nikkei is likely to trade between 8,750 and 8,900, strategists said, while Nikkei futures in Chicago closed at 8,815 on Monday, down 0.6 percent from the Osaka close of 8,870.
"Looking at the U.S. and European markets, investor sentiment does not seem to be that strong. There was selling following China's slowdown, but it was curbed only by hopes ahead of key events," said Masayuki Doshida, senior market strategist at Rakuten Securities.
"I expect a soft market today, much like yesterday," he said.
Investors have had high hopes that the Fed will announce another round of stimulus after it concludes a two-day meeting on Thursday.
On Monday, the Nikkei ended flat at 8,869.37 after rallying 2.2 percent on Friday, while the broader Topix index added 0.3 percent to 737.34.
The Nikkei is up 4.8 percent so far this year.
Barclays Securities said global equity prices were expensive relative to the real economy.
"A comparison of year-on-year growth suggests that the Nikkei average and S&P 500 are 10 percent and 20 percent rich, respectively, relative to Japanese and U.S. manufacturing indexes," it said in a report.
"Assuming this discounts additional monetary easing in the U.S. and Europe, and progress on the euro zone debt situation, we see a good chance of a significant correction in share prices within the next three months."
Barclays Securities said any rise in Japanese government bond yields would be short-lived.
STOCKS TO WATCH
--PANASONIC CORP <6752.T>
Ratings agency Moody's Investors Service said it downgraded Panasonic by two notches to Baa1 from A2, but kept its outlook on the electronics maker stable.
--JAPAN AIRLINES <9201.T>
Japan Airlines set the pre-market price for its initial public offering at the top end of the range, raising $8.5 billion for state coffers in a sign of solid demand for the world's second-largest IPO this year. It will list on the Tokyo Stock Exchange on September 19.
