“The retreat in the afternoon is simply due to the outside factors, such as declines in China stocks and U.S. futures,” said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management.
“Investors held their bets as they are still cautious about the direction of the U.S. bond yields.”
Treasury yields dipped on Monday, but held near more than one-year highs as investors bet on a faster U.S. economic recovery and higher inflation pressures.
Nikkei heavyweights SoftBank Group fell 0.9 per cent and Fast Retailing lost 0.1 per cent.
Persistent worries of policy tightening in China also continued to weigh on high-flying sectors and stocks with lofty valuations as investors turned cautious.
Companies that rely on China slumped, with robot maker Fanuc losing 1.53 per cent and construction machinery maker Komatsu shedding 1.24 per cent.
Japan Exchange Group jumped 2.78 per cent after the operator of the Tokyo Stock Exchange raised its full-year net profit forecast to 51.5 billion yen ($473.17 million) from 45.5 billion yen.
Stocks that gained the most among the top 30 core Topix names were Nintendo up 1.59 per cent, followed by Seven & i Holdings, up 1.23 per cent.
Mitsubishi UFJ Financial Group and Central Japan Railway, which lost more than 3 per cent each, were the worst performers among the Topix 30.
The largest percentage gainers in the Nikkei index were Japan Exchange Group, followed by Canon gaining 1.95 per cent and Shionogi & Co up 1.76 per cent.
Kawasaki Kisen Kaisha, down 7.21 per cent, was the biggest loser in the Nikkei, followed by Rakuten losing 6.69 per cent and Mitsui OSK Lines falling 5.82 per cent.