The Nikkei fell 1.74 percent on Wednesday as tyre maker Bridgestone Corp. a day earlier cut its profit forecast citing higher raw material costs, pulling down its own shares and those of rivals and chemical makers.
Brokerage shares plunged and recent gainers, such as Nippon Steel Corp. ., also lost ground as investors shunned equities after U.S. stocks sank amid uncertainty about the Federal Reserve's interest rate decision.
The Fed is expected to lift its benchmark rate after a two-day meeting that ends on Thursday, and its impact on a key market for Japanese products and on global stock markets is eagerly awaited.
Some confidence has been restored in the Tokyo market in the past few days, said Kenichi Hirano, strategist at Tachibana Securities, referring to the Nikkei's seemingly solid recovery to its highest close since June 6 on Tuesday.
But after seeing such a steep fall in U.S. stocks as yesterday's, doubts emerged that we may have to prepare for further price falls, he said.
The Nikkei was down 264.02 points at 14,907.79 as of 0452 GMT. The TOPIX index declined 1.18 percent to 1,531.13.
Nippon Steel, Japan's biggest steel maker, was down 1.7 percent at 418 yen. Steel stocks had risen recently on expectations of consolidation in the industry.
Nomura Securities, Japan's No.1 brokerage, dropped 2.4 percent to 2,050 yen, helping send the sector subindex down 2.22 percent.
Bridgestone lost 4.3 percent to 2,140 yen as Japan's largest tyre maker on Tuesday cut its profit forecast for the current year by 35 percent due to rising costs of natural rubber, oil and other raw materials.
Rival Toyo Tire & Rubber Co. Ltd. slid 4.2 percent to 430 yen.
Chemical makers also took a hit as Bridgestone's lament about raw material costs stoked concerns about the sector's earnings, and because naphtha prices notched up a new record.
Asian naphtha prices rose to a record high on Tuesday, with the key contract for the first half of August assessed around $655 a tonne, up about 30 percent this year, buoyed by high crude prices and firm spot demand.
Industry leader Mitsui Chemicals Inc. dropped 5.4 percent to 714 yen and Asahi Kasei Corp. slid 3.3 percent to 708 yen.
Shares of Elpida Memory Inc. plunged 8.1 percent to 4,210 yen due to supply concerns after the memory-chip maker said it would issue new shares to fund an aggressive capacity expansion plan.