Japan's Nikkei average slipped below 9,700 on Tuesday as investors took profits on bluechips after February's rally and concerns mounted of a near-term correction, while attractive valuations and the softer yen supported market sentiment.
China-related shares also fell for a second day in Tokyo after the world's second-largest economy cut its 2012 growth target to an eight-year low of 7.5 percent, as Beijing looks to shrink the economy's reliance on external spending and foreign capital.
Major exporters buoyed in recent weeks by the softer yen fell, with Honda Motor Co <7267.T> down 1.2 percent, Sony Corp <6758.T> off 0.5 percent and Panasonic Corp <6752.T> shedding 1.2 percent.
"Domestic investors are selling and the foreign buying that has so far pushed the market higher is taking a break," said Kenichi Hirano, operating officer at Tachibana Securities.
"Excess liquidity in global markets continues to support stocks but it does look like the Nikkei will adjust a little more in March, so this is the last chance to buy."
The benchmark Nikkei <.N225> edged down 0.4 percent to 9,658.70 after shedding 0.8 percent to a one-week closing low of 9,698.59 in the previous session.
Among China-related shares, construction machinery maker Komatsu Ltd <6301.T> slipped 1.9 percent and industrial robot maker Fanuc Ltd <6954.T> fell 2.4 percent. Hitachi Koki Co Ltd <6581.T>, a power tool manufacturer, was down 2.5 percent.
"The news of China cutting its growth outlook came out during market hours yesterday and although there was selling of China-related stocks afterwards (in Japan) they are extending losses today based on U.S. markets' reaction to the news," said Masayuki Doshida, senior market analyst at Rakuten Securities.
Japan's China 50 subindex <.NCHN> declined 0.9 percent.
Outperforming the market was Bridgestone Corp <5108.T>, up 1.5 percent, after the tyremaker said on Monday that it would invest 50 billion yen ($613 million) in a new plant in Thailand to make tires for construction and mining machinery, to keep pace with global demand.
The broader Topix <.TOPX> slipped 0.3 percent to 830.41.
The Dow Jones industrial average <.DJI> shed 0.11 percent to 12,962.81 by Monday's close. U.S. indexes fell overnight for a second straight session, led lower by the materials sector.
In terms of valuations, Japan's Topix index carried a 12-month forward price-to-book ratio of 0.94, lower than 1.96 for the S&P 500 and 1.37 for the STOXX Europe 600, data from Thomson Reuters Datastream showed.
Additional reporting by Dominic Lau