Japanese share prices closed down 0.24 per cent on Tuesday, on caution ahead of the ruling party's leadership election while a strong yen weighed on exporters, analysts said.
The headline Nikkei-225 index lost 22.51 points to end at 9299.31. The Topix index of all first section shares of the Tokyo Stock Exchange slipped 0.33 per cent, or 2.78 points, to 834.87.
Tokyo investors were awaiting the outcome of the vote by Democratic Party of Japan (DPJ) members for their party leader, they said.
Prime Minister Naoto Kan is facing a challenge from political heavyweight Ichiro Ozawa for Japan's top post, with media reports suggesting the race is too close to call, even though some give Kan a slight edge.
"Investors don't want to take large positions either way until the election result is out," Yutaka Miura, senior technical analyst at Mizuho Securities, told Dow Jones Newswires.
Investors generally consider Ozawa to be more market friendly as he is viewed as being more likely to take steps to boost the economy via stimulus spending and efforts to weaken the strong yen.
The Japanese unit weighed down exporters, with Toyota Motor down 1.66 per cent, Nissan Motor dropping 0.29 per cent and Toshiba down 1.00 per cent.
In Tokyo trade, the US dollar hit a fresh 15-year low against the yen, fetching 83.25 yen before recovering slightly to 83.35. It had already hit a low of 83.33 on September 8.
Major lenders extended gains as positive sentiment continued on new bank capital rules, which were not as stringent as earlier feared.
Mitsubishi UFJ Financial Group was up 0.73 per cent and Sumitomo Mitsui Financial Group rose 1.19 per cent.
Central bankers in Switzerland on Sunday reached a deal on new regulations, which will require banks to lift their reserves substantially to prevent a repeat of the financial crisis.
But they will be allowed a 10-year period, starting from 2013, to substitute capital instruments that no longer qualify.
