Japanese stocks closed lower on Wednesday as a spike in oil prices hit some exporters, while a slump in UFJ Holdings Inc triggered selling in the banking sector overall.
UFJ, the sole loss-making bank among Japan's top four lenders, sank for a seventh straight session to a three-month closing low after Goldman Sachs, considered bullish on the bank, said it had removed UFJ from its Current Investment List (CIL).
The news added further gloom to the market, where sentiment was already fragile due to record-high oil prices and concerns about the prospect of higher interest rates in the United States, analysts said.
The Nikkei average fell 0.48 percent to close at 11,242.34, while the broader TOPIX index lost 0.65 percent to 1,136.87.
Trading was quiet as investors held their breath ahead of the meeting of the Organisation of Petroleum Exporting Countries (OPEC) in Beirut on Thursday, where member countries are expected to discuss raising output.
The market was also eagerly awaiting Friday's release of monthly US jobs figures that are expected to shed light on when and by how much the Federal Reserve may raise interest rates from a four-decade low of one percent.
Only 1.059 billion shares changed hands, the lowest total since last Thursday's 1.017 billion, a three-month low.
Decliners outnumbered gainers 1,042 to 403. In removing UFJ from its CIL, Goldman analyst David Atkinson said in a note: "It is increasingly clear that UFJ stock is not going to hit our price target 970,000 yen in time, given the confluence of decreased risk tolerance in the market, very aggressive targets for asset quality improvement from a new management and weak capital base".
UFJ's shares tumbled for a seventh straight day, losing another 7.43 percent to 498,000 yen.
Bigger rival Mizuho Financial Group lost 1.68 percent to 467,000 yen, dragging down the banking sector's sub-index IBNKS.by 2.17 percent and making it the worst performing sector.
Higher oil prices sent a chill through market sentiment, as investors fretted about the impact on the global economy and companies' business prospects, analysts said.
During Asian trading hours, NYMEX crude oil futures hit a record high of $42.45 a barrel, exceeding previous record levels marked in New York overnight, on fears of supply disruptions after a weekend attack by suspected al Qaeda militants in Saudi Arabia.
"Higher oil prices do affect the global economy and investors are very nervous because they can't imagine how much higher oil prices may go from the current level," said Tsuyoshi Nomaguchi, a senior strategist at Daiwa Securities.
Nissan Motor Co fell for a seventh straight session, losing another 1.18 percent to 1,092 yen, the lowest closing level since February 16. Smaller rival Honda Motor Co lost 0.21 percent to 4,760 yen.
Semiconductor testing devices maker Advantest Corp sank 3.44 percent to 7,290 yen as investors waited for chip giant Intel Corp's updated financial forecasts for the second quarter due on Thursday.
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