As expected, the Bank of Japan trimmed its inflation forecasts but maintained its ultra-loose monetary policy at the end of a two-day meeting on Wednesday. However, the trade dispute between the United States and China was the key worry of the day. A report by the Financial Times that the United States had rejected China's offer for preparatory trade talks rekindled worries about their dispute, though White House economic adviser Larry Kudlow later denied it.
Prior to the market open, Japan reported exports in December fell the most in more than two years and by more than expected, dragged by plummeting shipments to China and regional markets as weak global demand and US-Sino trade frictions take their toll on the economy. "Japan is in a difficult position because of its economic reliance on the United States and China. Japan's cyclical stocks depend on demand from the two counties," said Takatoshi Itoshima, a strategist at Pictet Asset Management.
Some exporters rebounded as the dollar rose 0.3 percent to 109.65 yen, recovering from 109.4 yen in early Asian trade. Olympus Corp and Daikin Industries added 0.6 percent.
Subaru Corp stumbled nearly 7 percent at one point after the automaker said its sole car factory in Japan had halted output a week ago after it discovered a defect in a component. The company later recovered some ground and ended 3.4 percent lower after it gave further details. Bridgestone Corp shed 1.7 percent after the tire maker said it will buy TomTom's fleet business Telematics for $1 billion. Japan Display Inc jumped 19 percent after the Wall Street Journal reported that the company is in investment talks with Taiwan's TPK Holdings and Chinese state-owned Silk Road Fund.