Tokyo stocks fell 0.50 percent on Friday morning after losses in US and European shares and following the yen's upturn against the dollar.
The Nikkei 225 index at the Tokyo Stock Exchange eased 56.72 points to 11,252.41 by the break while the Topix index of all first-section issues was down 0.88 percent, or 8.44 points, at 954.42.
Foreign investor participation remained down on risk-aversion with little progress seen over the looming threat of compulsory US government spending cuts, and likely fallout on global markets, said Chibagin Asset Management general manager Yoshihiro Okumura.
US lawmakers failed to reach agreement on a comprehensive package to avert the so-called "fiscal cliff" of spending cuts and tax hikes by December 31 last year.
They opted instead for tax hikes on annual income above $400,000 and a two-month delay on the sharp cuts, which means they now face a March 1 deadline to avert billions of dollars in automatic budget cuts.
"The yen's decline versus the dollar, driven by expectations for Japanese fiscal and monetary policy, may be excessive and the market could be heading for a correction," Credit Suisse analyst Issei Takahashi told Dow Jones Newswires.
"Given the current external environment, we think investors should consider building portfolios by selecting individual stocks based on strong risk-return profiles," he said, noting worries on the "fiscal cliff" debate.
Automakers were down with Toyota Motor slipping 1.88 percent to 4,675 yen and Honda Motor off 1.15 percent at 3,435 yen.
Nissan Motor was down 1.06 percent at 930 yen, as a report said it plans to build a new plant in India together with French partner Renault.
Sony, which lost 1.77 percent Thursday following its announcement of a new generation PlayStation 4 system, dropped 2.70 percent to 1,295 yen by the break.
The dollar remained weak against the yen in early Asian trade after turning down sharply in a correction to its recent rise.
It was at 93.12 yen, hardly changed from 93.11 yen in New York Thursday afternoon but down from 93.67 yen in Asian trade on Thursday.
The dollar remained firm against the euro after rallying on a leading eurozone growth indicator showing that private business activity hit a two-month low in February.
The euro bought $1.3199 in Asia against $1.3188 in US trade while fetching 122.92 yen against 122.81 yen.
US stocks closed lower Thursday, hit by weak data on US manufacturing and from the eurozone. The Dow Jones Industrial Average finished down 0.34 percent at 13,880.62.