Japanese stocks closed sharply lower on Monday, as chip-related shares tracked their U.S. counterparts lower and a stronger yen dampened exporters' appetite.
The Nikkei index fell 2.19 percent to close at 38,820.49 points, its biggest decline since October 4.
U.S. chip stocks fell late last week, helping the Nikkei enter a correction phase, said Shoji Hosoi, chief strategist at Daiwa Securities.
The Nasdaq and S&P 500 closed lower on Friday, having hit record highs during the session as chip stocks reversed course following strong gains.
The strong yen has hurt Japanese stocks, Hosoi added. This trend is likely to continue until the Bank of Japan concludes its monetary policy meeting.
A growing number of Bank of Japan policymakers are open to abandoning negative interest rates this month amid expectations of big wage increases this year.
The yen is strengthening against the dollar on speculation of a Bank of Japan policy adjustment.
Chip equipment maker Tokyo Electron fell 3.15 percent, while chip testing equipment maker Advantest fell 4.78 percent.
The broader Topix index also fell 3 percent, before paring losses and ending the session down 2.2 percent at 2,666.83.
The banking sector index fell by 3.84 percent.
Toyota Motor Corp. fell 3.1 percent, the biggest drag on the Topix.
