The Nikkei stock average extended losses and marked its lowest close since March 15th today, as worries about the US economy offset signs that the Japanese authorities stand ready to quell any further yen strength.
The benchmark Nikkei slipped 1 per cent to 8,628.13. The broader Topix index dropped 1.2 per cent at 742.84.
"Given the economic hurdles faced in Europe and the United States, an upward trend is hard to sustain," said Park Yong-myung, a fund manager at Hanhwa Investment Trust Management.
Khiem Do, head of Asian multi-asset with Baring Asset Management in Hong Kong, said there would be little visibility on the direction of markets until it was clear whether the United States will slide into recession or not.
"The sentiment of markets is very weak at the moment," he said.
Spot gold prices hit a record $1,878.39 per ounce as the shaky global outlook prompted investors to move more money into the safe haven, while oil prices tumbled on hopes Libya may resume full output soon as a six-month civil war seemed to be nearing an end.
MSCI's world stock index fell 0.3 per cent, bringing its losses since late July to around 16 per cent, closing in on the 20 per cent decline that is often used to define a bear market.
A key event this week will be a speech by Federal Reserve chairman Ben Bernanke on August 26th in Jackson Hole, Wyoming, during which he is expected to provide an economic outlook and hints on how policymakers plan to handle the turmoil in financial markets.
Mr Bernanke used the same event last year to suggest the Fed could help growth by buying long-term bonds, but no major announcements are expected this time.
On Friday, US stocks fell after Hewlett-Packard's weaker outlook and corporate shakeup added to uncertainty for investors after a month of bad surprises ranging from a US credit rating downgrade to a sharp slowdown in world growth.
Markets will also watch data on bond buying by the European Central Bank and debt issuance by European countries such as Italy tomorrow to see if the euro zone's debt crisis is worsening.
Also tomorrow, a raft of preliminary manufacturing data will shed light on whether economies from China to the euro zone are continuing to lose momentum.
The dollar surged higher against the yen, but later pared some of its gains, with traders citing talk that the spike in the dollar was triggered by bids by a US bank.
The move came as investors were increasingly on edge about the possibility that Japan may intervene to curb yen strength, in the wake of the dollar's drop down to a record low around 75.95 yen late last week.
The dollar was last flat on the day at 76.77 yen, having risen to as high as 77.23 yen earlier.
Reuters
