Japanese stocks fall on profit taking
Japan's main stock index, the Nikkei 225, fell by 2.35% on Monday - the first trading day of the new year, as investors booked profits.
Japanese shares have surged over the past year, with the Nikkei 225 index rising by 57% in 2013.
The surge has been prompted by a series of aggressive policies unveiled by the government to revive Japan's economy.
The steps have seen a sharp decline in the yen's value, helping lift exports and boost profits of leading exporters.
The yen hit a five-year low against the US dollar on Friday - but recovered slightly in early Asian trade on Monday.
Analysts said the recovery in the yen had also prompted the sell-off in Japanese shares.
"Tokyo stocks are overbought, and a break in the yen's fall, plus weaker futures are sure to result in some long-needed profit-taking after the December run-up," said Hiroichi Nishi, general manager of equities at SMBC Nikko Securities.
The Nikkei fell by as much as 2.6% at one point, but recovered slightly to end the day down 382.43 points at 15,908.88.
Other Asian markets also fell after another survey added to evidence that China's economy slowed towards the end of last year.
The HSBC/Markit Economics Purchasing Managers' Index for China's service sector fell to 50.9 in December, down from 52.5 the month before and the lowest reading since August 2011. A figure above 50 indicates expansion.
China's benchmark Shanghai Composite Index fell 1.8% to 2,045.71, and Hong Kong's Hang Seng dropped 0.6% to 22,684.15.Further jump?
End Quote Richard Jerram Bank of Singapore
The yen is going to keep going down and as we saw last year, it's a fairly simple dynamic”
Japan's economy, the world's third-largest, has been stagnant for nearly two decades.
In an attempt to revive growth, Japan's policymakers have unveiled a series of moves including doubling the country's money supply.
The moves have seen the yen weaken more than 20% against the US dollar since January last year.
A weaker yen makes Japanese goods more affordable for foreign buyers and boosts profits of exporters when they repatriate their foreign earnings back home.
A weak currency, coupled with signs of a recovery in the Japanese economy, has helped boost investor sentiment and lifted Japanese stocks.
Analysts said that Japan's central bank, the Bank of Japan, was likely to continue to take further steps to help sustain the recovery - which would help boost stocks further in the coming months.
"We know there is more to come from the Bank of Japan," Richard Jerram, chief economist at Bank of Singapore, told the BBC.
"The yen is going to keep going down and as we saw last year, it's a fairly simple dynamic. It boosts the corporate sector, boosts profits and the stock market."
Mr Jerram said that Japan's main stock index could rise between 15% to 20% in the current year.