The Nikkei 225 Index fell 1.4% to below 38,300, while the broader Topix Index dropped 0.7% to 2,717 on Tuesday, marking a five-week low as Japanese stocks tracked losses on Wall Street overnight.

The downturn was fueled by a pullback in technology and artificial intelligence stocks, sparking concerns that the AI-driven rally may be losing momentum. However, some analysts believe the AI sector could continue to thrive for years to come.

Meanwhile, traders in Japan are awaiting a series of economic reports set for Friday, which may offer fresh insights into the Bank of Japan's future monetary policy. Releases include industrial production, retail sales and Tokyo inflation figures.

Chipmakers and AI-related companies led the decline, with significant losses in stocks such as Disco (-6.5%), SoftBank Group (-5.2%), Advantest (-5.6%), Hitachi (-6%), and Tokyo Electron (-2.6%).

Source: Trading Economics