The Nikkei share average fell 0.42% to close at 28,743.25, while the broader Topix edged down 0.14% to 1,893.58.
“Investors are trying to take advantage of the recent rally to adjust their positions toward the end of the fiscal year in March,” said Takashi Hiroki, chief strategist, Monex Securities.
Japanese shares made a strong start to 2021, with the Nikkei touching 30,000 level for the first time in 30 years last month on optimism over COVID-19 vaccine rollouts and an economic recovery.
However, domestic equities have weakened in the past few sessions as rising bond yields globally sparked fears that central banks would tighten policy.
“Investors are concerned about the outlook of U.S. rates, while the Bank of Japan’s stance on the purchase of exchange-traded funds has not been confirmed,” Hiroki said.
On Monday, Uniqlo clothing chain operator Fast Retailing lost 1.66%. Fund manager SoftBank Group fell 2.36% and chip testing equipment maker Advantest declined 3.38%.
Office equipment maker Ricoh slumped 6.27%, making it the biggest loser on the Nikkei.
Takeda Pharmaceutical jumped 3.91% after the drugmaker said it had sought approval for the use of Moderna’s COVID-19 vaccine.
Nippon Steel Corp advanced 3.32% after it said it would further reduce capacity due to falling domestic demand and intensifying competition from China.
Japan’s biggest oil and gas explorer, Inpex, gained 4.56% on the back of higher oil prices.
The stocks that gained the most among the top 30 core Topix names were Takeda Pharmaceutical, followed by Tokio Marine Holdings, which rose 3.72%.
The underperformers among the Topix 30 were Nidec down 5.72%, followed by Nintendo losing 3.69%.
There were 140 advancers on the Nikkei index against 81 decliners. (Reporting by Junko Fujita; Editing by Aditya Soni)