Japan's Nikkei average fell 0.2 percent on Tuesday as drugmakers such as Astellas Pharma (4503.T) slid amid worries about their global competitiveness after Merck (MRK.N) proposed to take over Schering-Plough (SGP.N).
The Nikkei booked a 26-year closing low of 7,086.03 on Monday, and many market players expect it to break below the 26-year low hit in October of 6,994.90 sometime in the next few days.
Market players said hopes for the government to step into the market, often called price keeping operations or PKOs in Japan, were lending support.
"Hopes that the government will implement powerful PKOs are keeping the Nikkei from breaking below 7,000. If it weren't for those hopes, it would have gone below that level by now," said Fumiyuki Nakanishi, manager at SMBC Friend Securities.
"As part of moves to reduce risky assets, investors are shifting funds to cash from equities."
Market participants have said buying by what they believe to be public pension funds has been supporting the benchmark when it approaches the October trough.
The benchmark Nikkei .N225 slipped 13.79 points to 7,072.24, after briefly turning positive at one stage.
The broader Topix fell 0.5 percent to 706.68. It lost 1.5 percent on Monday to book a fresh 25-year closing low.
Shares of drugmakers dropped after Merck's proposed a $41 billion takeover of Schering-Plough (SGP.N). .N
"Japanese drugmakers will be at disadvantage from a competitiveness standpoint if their European and U.S. peers become bigger through mergers and acquisitions," said Nakanishi at SMBC Friend Securities.
Astellas shares lost 4.3 percent to 2,890 yen and Chugai Pharmaceutical Co (4519.T) shed 4.2 percent to 1,579 yen.
Takeda Pharmaceutical Co (4502.T), Japan's biggest drugmaker, extended losses after the stock dived 13 percent on Monday, plunging by its daily limit on fears the replacement for its best-selling diabetes drug could be delayed by years in the United States.
Takeda fell 1.2 percent to 3,280 yen.
But some high-tech exporters rebounded after being sold off in recent days, with Kyocera Corp (6971.T) climbing 1.5 percent to 5,520 yen.
