The Federal Reserve said on Tuesday the U.S. economy was expanding moderately and voted against new stimulus to offset the effects of the debt crisis in the euro zone.
Market players said the Fed statement was within expectations, but the central bank pointing to turmoil in Europe as a significant risk to the U.S. economy prompted selling of stocks as it revived worries about the impact of the euro zone debt crisis on the fragile global recovery.
German Chancellor Angela Merkel rejected any suggestion of raising the 500 billion euro bailout fund on Tuesday, which also pressured global markets.
The benchmark Nikkei fell 0.6 percent to 8,501.95, above its closely watched 25-day moving average around 8,508, after briefly falling below 8,500 after the open. The broader Topix index lost 0.7 percent to 735.62.
"Merkel rejecting suggestions to lift the European Stability Mechanism (ESM) and the possible downgrades of European nations add to the uncertainty," said Yumi Nishimura, a senior technical analyst at Daiwa Securities. "Japanese markets are meeting steep support but there are no particularly good factors that would switch the trend upward."
Moody's says it intends to review EU sovereign ratings in 2012 and that last week's summit of European leaders offered "few new measures". Fitch Ratings said the summit's failure to provide a "comprehensive" solution would increase short-term pressure on euro zone sovereign ratings.
The Bank of Japan announced it had bought 17.8 billion yen ($229 million) worth of exchange-traded funds on Tuesday, supporting stocks for the first time since Nov. 18. The Nikkei pared losses on Tuesday afternoon but ended down 1.2 percent.
Market players see 8,500 as an important level for sentiment and said hedge funds and pension funds are stepping in to buy at that level as Japanese stocks are viewed as undervalued. Roughly 70 percent of stocks on the main board have an average price-to-book ratio near 0.9 percent.
Online gaming firm Nexon Co made its Tokyo trading debut on Wednesday and its shares traded at 1,271 yen after opening at 1,307 yen following its $1.2 billion initial public offering, Japan's biggest this year.
Nexon was the heaviest-traded share by turnover on the main board although it remained below its IPO price of 1,300 yen. Investors said the price was in line with broader market declines and they expect it to rise steadily throughout the day.
Olympus Corp is back in focus Wednesday, the day it is due to file its revised earnings to avoid delisting by the Tokyo Stock Exchange.
The 92-year-old maker of cameras and medical equipment has been engulfed by a $1.7 billion accounting fraud, one of Japan's worst corporate scandals, and has vowed to iron out its accounts in the eagerly awaited filing. Olympus was down 1.2 percent at 1,354 yen, tailing Nexon on the main board as the second-heaviest traded share by turnover.($1 = 77.8450 Japanese ye
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