The Nikkei fell 0.58% to end at 50,219.18, after falling as much as 0.8% during the session.
The broader Topix closed 1.18% lower at 3,285.87.
The indexes extended losses as the yen strengthened after U.S. Treasury Secretary Scott Bessent called for “sound monetary policy” during his meeting with Japanese counterpart Satsuki Katayama.
The comments were seen as a blow to the Bank of Japan, which had been raising interest rates slowly.
“The market sold stocks as they thought the yen would not weaken any further,” said Shuutarou Yasuda, a market analyst at Tokai Tokyo Intelligence Laboratory.A stronger yen typically weighs on exporter shares by reducing the value of overseas earnings when converted back into Japanese currency.Toyota Motor and Honda Motor lost 1.46% and 1.39%, respectively.
Investors also sold stocks to book profits. The Nikkei rose 2.46% to close above the 50,000 level for the first time ever on Monday, continuing a run of successive records on expectations of sizeable spending from the nation’s new prime minister, Sanae Takaichi.
Nidec plunged 19.45% to its daily low limit, after the Tokyo Stock Exchange (TSE) put the precision motor maker on alert for possible delisting.
Pulling the index lower, chip-testing equipment maker Advantest fell 0.41% and Uniqlo-brand owner Fast Retailing lost 1.18%.
Technology investor SoftBank Group rose 3.22% to be the biggest support for the Nikkei. Chip-making equipment maker Tokyo Electron rose 2.71%.
Optimism around growth and capital expenditures related to U.S. artificial intelligence continues to support investor sentiment, said Kazuaki Shimada, chief strategist at IwaiCosmo Securities, adding that the market is hopeful about the prospects of a U.S.-China trade deal.