Nikkei 225 closed 0.9% lower at 63,754.90 points, dragged down by electronics and automotive stocks. The index retreated from a one-week high reached in the previous session, as the yen's rapid appreciation pressured the market after Tokyo and Washington confirmed a rare coordinated currency intervention on Friday.

The broader Topix index fell 1.1% to 3,960.03 points. Among the 225 components of the Nikkei, 169 stocks declined, 52 advanced, and 4 remained unchanged.

The yen strengthened by as much as 1.4%, hitting a nearly three-month high of 155.20 against the U.S. dollar, extending its rally of 3.8% over the previous two sessions. A stronger yen reduces the value of overseas earnings for many of Japan's major exporters.

Key market drivers

Nomura Securities equity strategist Akiyama Wataru noted that the joint currency intervention was the biggest focus for the stock market today, putting pressure on the overall market. Japan's Ministry of Finance stated that Japan and the U.S. conducted a coordinated yen-buying intervention and would not hesitate to take further action. Late last month, the yen had briefly hovered near 40-year lows against the dollar.

On Friday, the Nikkei had surged over 4% to its highest level since July 24, driven by a rally in tech stocks following strong earnings forecasts from Microsoft, which eased concerns about massive spending in the artificial intelligence sector.

However, several Japan-linked chip-related heavyweights declined on Monday, with Tokyo Electron falling 0.9% and Advantest dropping 3.3%. Automakers were among the worst-performing sectors, with Toyota down 3.4% and Suzuki plummeting 6.7%.

Notable winners included SoftBank Group, an investment firm focused on AI startups, which rose 2.5% after recovering from early losses, and Lasertec, which surged nearly 8%. Memory chip maker Kioxia gained 5.7% after announcing a share buyback plan, while chipmaker Renesas Electronics soared 13.5% on the back of its earnings report.