TOKYO: Tokyo stocks closed 0.18 percent lower on Tuesday as an early bargain-hunting rally fizzled and gave way to the stubbornly high yen and fears about a US budget deadlock.
The benchmark Nikkei 225 index at the Tokyo Stock Exchange was down 15.39 points at 8,661.05, while the broader Topix index of all first-section shares was flat, giving up just 0.02 points, at 722.56.
The Tokyo market started the morning session in positive territory as investors scooped up bargains after the Nikkei closed Monday at its lowest level since mid-October.
But the rally quickly ran its course, dealers said, with the strong yen weighing on exporters in thin trade.
Traders have turned to the safe-haven yen as eurozone worries have been stoked by news that the bloc's finance ministers delayed until next week a final decision on disbursing the next tranche of bailout cash for Greece.
The currency's rise came even as official data Monday showed Japan's economy contracted in the latest quarter, nudging it toward recession and renewing pressure on the Bank of Japan to launch further stimulus, which tend to weaken the yen.
There are also simmering fears over the US fiscal cliff of spending cuts and tax hikes slated to come into effect on January 1 unless a bitterly divided Congress agrees a new plan to reduce the country's yawning deficit.
Failure to reach a deal could see the package kick in, likely sending the economy into recession.
"In such a lacklustre market, the tick up in the yen is causing the normal selling mood," Yoshihiro Okumura, general manager at Chibagin Asset Management, told Dow Jones Newswires.
Media reports on Tuesday said Prime Minister Yoshihiko Noda has decided to dissolve Japan's parliament as early as Friday, with an election possibly next month, a move likely to unseat him from power.
In stock trading, major Japanese exporters ended mixed, with camera and office equipment maker Canon losing 0.48 percent to 2,441 yen, while Sony was up 0.58 percent at 861 yen. Automaker Honda slipped 0.08 percent to 2,356 yen.
Olympus jumped 5.86 percent to 1,317 yen after saying Monday that it had swung back to profitability and raised it full-year net profit view as the firm moves on from an embarrassing accounting scandal.
In currency trade, the dollar eased to 79.30 yen from 79.49 yen in New York late Monday, while the euro bought $1.2680 and 100.55 yen, compared with $1.2709 and 101.02 yen.
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