On top of ECB's Juergen Stark's surprise departure last week, fears about a Greek default rose after senior politicians in German Chancellor Angela Merkel's centre-right coalition started talking openly about it.
Analysts said the Nikkei will likely be supported above 8,500 on Monday and added that hopes that Japan's central bank will buy assets to support the market would likely put the brakes on further sharp declines this week.
For three days of Nikkei declines starting Sept. 2, the Bank of Japan bought exchange-trade funds worth 66.9 billion yen, and 1.7 billion yen of REITs on Sept 9.
The benchmark Nikkei dropped 2.1 percent to 8,550.31, dropping below last Tuesday's 8,588, its lowest level since March 15 when stocks were sold off after the earthquake and tsunami.
The broader Topix index shed 2.0 percent to 740.55.
Investors are also awaiting the U.S. central bank's policy-setting Federal Open Market Committee meeting on Sept. 20-21 to see if it will adopt further accommodative steps to stimulate the U.S. economy, analysts added.
Yumi Nishimura, a senior market analyst at Daiwa Securities said some investors are still looking at 8,227.63, an intraday low hit on March 15 as the next support after 8,500 for the next few weeks but attractive valuations were likely to prevent it going that far.
"As long as the euro stays weak, bellwether exporters stocks will likely stay sluggish. But instead of embarking on big selling, investors may stay on the sidelines as the next support line is way below the current level," she said.
Suzuki Motor Corp slipped 3.2 percent to 1,478 yen, after Volkswagen (VOWG_p.DE) accused the Japanese automaker of violating their near two-year old partnership and gave it an ultimatum of several weeks to fix the situation.
Honda Motor Co dropped 3.7 percent to 2,260 yen after the car maker said it is recalling almost 347,000 Pilot sport utility vehicles worldwide due to a potential problem with their front seat belts. source http://www.reuters.com/article/2011/09/12/markets-japan-stocks-idUSL3E7KC02120110912
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