The 225-issue Nikkei Stock Average dropped 48.17 points from Friday to close the day at 8,793.05, while the broader Topix index of all First Section issues on the Tokyo Stock Exchange lost 4.12 points, or 0.54 percent, to finish at 757.01.

Tokyo-based analysts also noted that the euro falling against the yen also dampened investor sentiment and added more pressure to export-related issues, the companies of which rely on a weaker yen to boost overseas profits and competitiveness.

With the euro falling below the 101-yen line during trading hours in Tokyo and the U.S. dollar down to as low as 76.65 yen, consumer electronics giant Sony Corp. dropped 1.8 percent and Fujitsu fell 3.4 percent to close at 404 yen.

Japan's top-automaker Toyota Motor Corp. skidded down 1.7 percent to 2,789 yen, while smaller rival Mazda Motor also closed in negative territory, falling 3.1 percent to finish at 127 yen.

Mitsubishi Electric was among the day's notable decliners, tumbling 14.8 percent to 650 yen, following reports the firm's defense and space-related contracts may be suspended. Observers said the firm may have overcharged the government on space and defense related projects.

Bucking the downward trend however Advantest Corp. surged 12 percent to 817 yen on reports it will raise its full-year dividend to 15 yen per share from 10 yen and JPMorgan Chase & Co. lifting its target price to 700 yen from 650 yen, also buoyed the issue today.

But Japanese shipping lines sank Monday on reports of pretax losses as cargo rates decline, and Nippon Yusen K.K. lost 2.1 percent to 191 yen, while Mitsui O.S.K. Lines Ltd. declined 2.1 percent to 285 yen.

Nippon Electric Glass also lost ground on news of a gloomy profit outlook, and the firm fell 10 percent to 670 yen, after stating its profits may tumble by as much as 54 percent to 410 million U.S. dollars for this fiscal year, as demand for glass- related products wanes.

Asahi Glass Co., for its part, also came under pressure and closed the day at 627 yen, having retreated 3.4 percent.

Trading volume on Monday dropped to 1.64 billion shares on the Tokyo Exchange's First Section, down from Friday's volume of 1.93 billion shares, with declining issues outnumbering advancing ones by 841 to 671.