Japan's Nikkei average hit its lowest close in four months on Tuesday as banking shares were sold on persistent worries that more financial firms would tap the market for equity financing and as a stronger yen hurt shares of exporters.
Japan Airlines Corp plunged to a record low on worries about a possible bankruptcy, while consumer lender Takefuji Corp fell nearly 7 percent after a two-notch downgrade from rating agency Moody's to a level indicating a very high credit risk.
"There are Japan-specific worries in the market which have come from uncertainty about the new government's policies," said Junichi Misawa, a senior fund manager at STB Asset Management.
"We still don't know how the government plans to boost the competitiveness of Japan's economy or companies. We also have the recent flurry of equity financing, coupled with a stronger yen."
The benchmark Nikkei fell 1 percent to 9,401.58, its lowest finish since July 17.
The broader Topix declined 1.1 percent to 829.22. Tokyo markets were closed for a holiday on Monday.
Finance Minister Hirohisa Fujii said Japanese demand was weak and fiscal policy alone could not revive it, putting pressure on the Bank of Japan to respond to deflation.
Trade was light on the Tokyo exchange's first section, with 1.8 billion shares changing hands, below last week's daily average of 2.1 billion.
Declining stocks outnumbered advancing ones by nearly 4 to 1.
EXPORTERS DRAG
Exporters slid as the dollar stayed near a six-week low of around 88.60 yen hit the previous day. Investors fret about a stronger yen since it eats into exporter profits when repatriated.
Sony Corp slid 1.9 percent to 2,365 yen and Kyocera Corp slipped 1.3 percent to 6,950 yen. Toyota Motor Corp shed 1.7 percent to 3,380 yen.
JAL sank as much as 10.5 percent to a record low on investor worries the struggling airline could face bankruptcy if it cannot secure an agreement from its pensioners for benefit cuts.
"A lot of retirees appear to oppose the pension cuts, and a very similar situation forced General Motors into bankruptcy," said Takashi Ushio, head of the investment strategy division at Marusan Securities.
The stock price slide also follows news that Mitsui & Co sold its entire stake of 11.73 million shares in JAL during the six months to Sept. 30. A spokesman for the trading house did not say why it unloaded its shares, which were less than half of one percent of the company.
JAL dived 8.4 percent to 87 yen, after earlier sinking to a record low of 85 yen.
Banking shares slid, erasing gains made on Friday.
Third-ranked Sumitomo Mitsui Financial Group dropped 4.4 percent to 2,690 yen and no. 2 bank Mizuho Financial Group retreated 2.5 percent to 154 yen on worries it might follow Mitsubishi Financial Group, Japan's largest bank, in announcing a large fundraising.
MUFG fell 2.8 percent to 458 yen.
Fitch Ratings said on Tuesday that it believes that Mizuho and SMFG may consider various measures to bolster their core capital buffers in the short to medium-term.
Japanese companies have so far raised about $40 billion this year by issuing common stock and convertible bonds to shore up balance sheets depleted by the economic downturn.
Almost three-quarters of that fundraising has been by financial firms, and analysts say that Mizuho and Sumitomo Mitsui Financial Group will also need to raise more funds.
Takefuji lost 6.8 percent to 369 yen after Moody's downgraded long-term debt issued by the consumer finance company by two notches to Caa1 from B2.
Machine tool maker Mori Seiki tumbled 11.2 percent to 793 yen after the firm said it would raise up to 18.2 billion yen ($204 million) to invest in new equipment and to buy Sony's measuring equipment unit
