The Nikkei share average fell 1.45 percent today as Advantest Corp. and other technology stocks declined on dimming earnings prospects, while yesterday's bomb blasts in India hurt market sentiment.
Property shares such as Mitsubishi Estate Co. Ltd. fell on the prospect of higher interest rates in Japan. The Bank of Japan starts a two-day policy board meeting tomorrow and is widely expected to lift interest rates from zero for the first time in six years.
Investors turned wary of earnings outlooks as some companies including communications-equipment maker Lucent Technologies Inc have issued profit warnings, said Tsuyoshi Nomaguchi, a Japanese equities strategist at Daiwa Securities Co. Ltd.
"Confidence in corporate earnings has been shaken, and at times like these you won't be aggressively buying Japanese auto or technology shares," Nomaguchi said.
He said investors were also selling stocks on rising concern about security in Asia after a series of bombs hit Mumbai 's rail network yesterday, killing at least 183 people.
The Nikkei lost 224.50 points to 15,249.32. The broader TOPIX index was down 1.40 percent at 1,563.69.
Growing uncertainty over global security is making the stock investment difficult, said Kazuhide Hayashi, deputy general manager at Norinchukin Zenkyoren Asset Management.
"We have the North Korea problem, and Iran's situation is still unsettling," he said, referring to Iran's rebuffing demands to halt uranium enrichment as well as North Korea's missile launches last week.
He said Japanese companies would not change their full-year forecasts, which are seen as conservative, until October when mid-term earnings results are announced.
"I expect Japanese company to post about 10 percent profit growth this year...but such a clear, broad picture won't come out until the interim reports," he said.