Japan's Nikkei average edged lower on Tuesday morning, weighed down by concerns about the US Federal Reserve's plans to reduce its massive stimulus with companies that are heavily exposed to emerging markets leading the losses.
The benchmark Nikkei shed 0.5% to 13,684.60 by the midday break, while the broader Topix eased 0.2% to 1,146.71.
The Nikkei took its early lead from US stocks, where each of the major indices fell for a fourth straight session on Monday, as investors were hesitant to make new bets ahead of an expected shift in Fed policy that could lead to higher interest rates. The US stimulus uncertainty has roiled global markets in recent months.
"Most investors seem to have taken a wait-and-see attitude, while no massive speculative futures trading was noted so far," said Kenichi Hirano, a strategist at Tachibana Securities. "Investors are nervously eyeing the emerging markets, including India, Indonesia and China."
The Indian rupee and the Indonesian rupiah slumped on Monday as the expected withdrawal of US monetary stimulus prompted investors to pull back from emerging markets.
Companies with large exposure to emerging markets, such as India and Indonesia, tumbled on Tuesday, with Suzuki Motor Corp and Daihatsu Motor Co Ltd falling 5.1% and 3.7%, respectively, and Yamaha Motor Co Ltd dropping 4.2%.
Major exporters also lost ground, and were a drag on the market, despite the yen pulling back from recent multi-week highs against the dollar, as investors remained cautious given the greenback's recent strength.
Sony Corp lost 1.2% and Toyota Motor Corp. dropped 1.1%.
The yen was last quoted at 97.74 yen to the dollar, little changed from Monday but keeping some distance from a seven-week high around 95.81 yen touched earlier this month.
A weaker yen sharpens Japanese exporters' competitive edge in global markets and boosts their dollar earnings when repatriated.
Bucking the broader market weakness, Kansai Electric Power Co Inc jumped 4.8% after Mitsubishi UFJ Morgan Stanley Securities raised its rating, citing a likelihood of restarting its nuclear reactors that are currently shut for inspection.
Despite the recent falls, the benchmark Nikkei is still up 32% this year, spurred by the government's expansionary fiscal policy and the Bank of Japan's aggressive monetary stimulus.