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Tokyo stocks were down 0.92 percent on Monday morning as the yen strengthened after the Bank of Japan (BoJ) quarterly Tankan survey showed a modest uptick in business sentiment.
The benchmark Nikkei 225 index shed 114.16 points to 12,283.75 by the break, while the Topix index of all first-section shares fell 1.98 percent, or 20.44 points, to 1,014.27.
Just before the opening bell, the Tankan showed confidence among large Japanese manufacturers saw a modest improvement in the first quarter as Tokyo works to reverse years of limp growth.
Investors are also watching a BoJ policy meeting this week as its new governor, Haruhiko Kuroda, talks up his plans to stoke the economy and reverse falling prices that have crimped private spending and corporate investment.
There are widespread expectations that the bank will launch a new wave of aggressive policy measures that tend to weaken the yen and lift exporter shares.
New investment money will start flowing into stocks from Monday as a new fiscal year starts, said SMBC Nikko Securities general manager of equities Hiroichi Nishi.
"But turmoil in the eurozone regarding the Cyprus bank fallout, as well as geopolitical stress in the Korean peninsula still warrant keen attention," he added.
Tokyo's dip on Monday comes after the Nikkei soared almost 20 percent in the first quarter of the year while on Wall Street Thursday the Dow Jones Industrial Average and the S&P 500 both ended at record highs.
A stronger yen weighed on major exporters in Tokyo trade, with Toyota off 1.23 percent at 4,800 yen, Canon falling 0.58 percent to 3,380 yen and tyre giant Bridgestone slipping 2.68 percent to 3,085 yen.
Sony fell 3.28 percent to 1,588 yen while Olympus slipped 2.80 percent to 2,149 yen after the pair said last week that their planned medical joint-venture had been held up due to delays in winning regulatory approval.
In morning Tokyo forex trade, the dollar weakened to 93.89 yen against 94.20 yen in Easter weekend trade on Friday in New York.
The euro bought $1.2777 and 119.98 yen, slipping from $1.2818 and 120.78 yen, as the Cyprus bailout and Italian political instability led to caution among dealers.