Tokyo shares fell 1.47 percent by the break on Monday, hit by a surging yen and losses on overseas bourses amid fresh concerns over Spain's debt crisis and the fate of the eurozone.
The Nikkei 225 index at the Tokyo Stock Exchange fell 127.22 points to 8,542.65 while the broader Topix index of all first-section issues gave up 1.09 percent, or 8.00 points, to 725.82.
"Investors are taking a cautious stance amid increasing risks such as sluggish global growth and a strong yen," Monex Inc. chief strategist Takashi Hiroki told Dow Jones Newswires.
Japanese companies may lower their guidance for the current business year to March 2013 as they release their quarterly earnings results, he said.
US and European markets fell Friday amid concerns that Spain's government could require financial help from its eurozone neighbours.
The worries sent Spanish borrowing costs to a euro-era record level, with the currency falling to multi-year lows against the dollar and yen on Monday.
"It's not the kind of situation where fears are just going to fade away, since the required amount of aid that Spain will need is likely to mount given the increasing needs of local governments," said Rakuten Securities senior market analyst Masayuki Doshida.
Spain warned Friday its recession would drag on through 2013 and one of its indebted regions, Valencia, reached out for emergency aid from the already cash-strapped central government.
On currency markets, the euro bought $1.2109 and 94.68 yen in Tokyo trade, down from $1.2152 and 95.38 yen in New York late Friday.
In earlier trade, the common currency dipped as low as 94.61 yen, its lowest level since November 2000.
The dollar fetched 78.15 from 78.48 in US trade.
In Tokyo Nippon Steel was down 0.64 percent to 153 yen and JFE Holdings tumbled 2.93 percent to 1,027 yen following a weekend report that both steelmakers likely suffered steep profit drops in the April-June quarter.
All Nippon Airways fell 2.70 percent to 180 yen, below the 184 yen it priced its huge new share offering in a move aimed at raising more than $2 billion.