The Nikkei finished 0.1% lower at 50,323.91, after rising as much as 0.4% earlier in the session. The broader Topix fell 0.37% to 3,347.53.
On Friday, China warned Tokyo of a “crushing” military defeat if it used force to intervene over Taiwan and warned Chinese citizens against visiting Japan.
Tensions between Tokyo and Beijing have flared up since Japanese Prime Minister Sanae Takaichi said earlier this month that a Chinese attack on Taiwan could amount to a “survival-threatening situation” and trigger a potential military response from Tokyo.
Japanese retailers rely a lot on Chinese tourists, who spend a large amount of money in buying clothing and cosmetics.
Shares of department stores fell, with Isetan Mitsukoshi Holdings down 11%. Takashimaya lost 6.18%, while cosmetics maker Shiseido fell 9.08%. Uniqlo-brand owner Fast Retailing lost 5.29% to become the biggest drag on the Nikkei. “Market reaction to those stocks was a little bit too much. Investors might have priced in all the bad news regarding the relationship between China and Japan,” said Shoichi Arisawa, general manager of the investment research department at IwaiCosmo Securities.
“I do not think the sell-off of those stocks would continue.”
Lending some support to the market, technology stocks rose as investors snapped up chip and artificial intelligence-related shares on dip.
Chip-making equipment maker Tokyo Electron rose 4.55% to become the biggest support for the Nikkei. SoftBank Group gained 2.83%.
Mitsui Kinzoku, a maker of data centre materials, jumped 8.87%.
Sumitomo Mitsui Financial Group rose 4.57% after the country’s second-largest banking group posted a 57% rise in July-September quarter net profit on Friday.
Mitsubishi UFJ Financial Group and Mizuho Financial Group slipped 1% and 0.26%, respectively, even as they posted higher quarterly net profits.