The Nikkei average lost 0.6 percent on Tuesday on caution ahead of a wave of U.S. economic data, while clothing company Fast Retailing Co Ltd extended its slide after announcing further acquisition plans.
After the market closed, Sony Corp's financial unit said it would carry out an initial public offering on October 11 that would raise about 361 billion yen ($3.12 billion) in Japan's biggest listing this year.
Overall, trade was subdued ahead of U.S. indicators such as non-farm payrolls and ISM non-manufacturing data, with 1.45 billion shares changing hands, compared with a daily average volume of 2.1 billion shares in July. Decliners led advancers 935 to 641.
The market is listless and investors appear to be determined not to push prices higher before the U.S. indicators, said Hiroyuki Fukunaga, chief strategist in the research division at Rakuten Securities.
Takahiko Murai, a general manager of equities at Nozomi Securities, said the resignation of Agriculture Minister Takehiko Endo on Monday had cast a pall over the market.
Because we have a lack of incentives to trade on at the moment, politics can serve as a trigger, he said. After all, investors have got used to news on subprime issues.
The benchmark Nikkei average slipped 0.63 percent, or 104.46 points, to 16,420.47. The broader TOPIX index declined 0.54 percent, or 8.70 points, to 1,596.74.
While some market participants are concerned about another sharp fall in share prices as subprime problems linger, others like Kazuya Nakamura, deputy general manager at Norinchukin Zenkyoren Asset Management, said the market may remain resilient.
Everyone is quite cautious and even if we have a next round of selloffs, the drop may not be as sharp as the first one, he said.
Some positive news came as the Nikkei business daily reported that the amount of share buybacks for August by listed companies more than tripled from a year earlier to more than 750 billion yen, as they took advantage of recent drops in their share prices.
FAST RETAILING DROPS
Fast Retailing fell 3.6 percent to 6,490 yen after it reiterated plans to invest up to 400 billion yen on acquisitions a month after it lost a bidding war for high-end retailer Barneys New York.
Market participants said the business plan was called into question as investors were suspicious of a growth strategy funded
Consolidation hopes lifted some bridge makers after a news report that Nippon Steel Corp (5401.T: Quote, Profile, Research) and Mitsubishi Heavy Industries Ltd had agreed to merge their bridge construction businesses. Japan Bridge Corp., a maker of steel structures including bridges, jumped 7.3 percent to 309 yen and Matsuo Bridge leapt 8.4 percent to 142 yen.
But Nippon Steel gave up earlier gains and ended down 1.1 percent at 815 yen. Mitsubishi Heavy too dipped 0.1 percent to 708 yen.