Reflecting the cautious mood, gains were made by defensive shares such as utilities, food and railway operators. Tokyo Electric Power Co rose 3.7 percent, Nissin Foods Holdings 1 percent and Central Japan Railway added 1.3 percent. Of the Tokyo Stock Exchange's (TSE) 33 sub-indexes, machinery and electric machinery sectors were some the worst performers, shedding 1.6 percent and 1.2 percent, respectively.
Caterpillar Inc on Monday missed quarterly earnings estimates, hurt by soft Chinese demand, higher manufacturing and freight costs. Nvidia Corp cut its fourth-quarter revenue estimate by half a billion dollars because of weak demand for its gaming chips in China and lower-than-expected data centre sales. Komatsu Ltd and Hitachi Construction Machinery both lost more than 4 percent following Caterpillar's results.
"We expected that slowing China demand would hit global manufacturers' earnings to some extent but their missing their estimates was shocking," said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management. The downbeat results from the US manufacturers point to troubles for Japanese machinery makers already struggling with declining orders from China, he said.
"The market is cautious against earnings of manufacturers which have large exposure to China," Shigemi said. Chip-related stocks also lost ground after Nvidia's estimate cut. Tokyo Electron shed 2.4 percent, Advantest Corp slid 4.6 percent and Screen Holdings dropped 7.6 percent. Silicon products maker Sumco Corp stumbled 5.3 percent and Shin-Etsu Chemical lost 6 percent.
Gainers included electronic devices and precision mouldings maker Shin-Etsu Polymer Co, which advanced 4.8 percent after its operating profit for the nine months through December 2018 rose 19.2 percent to 6.78 billion yen ($62 million).