Japan's Nikkei drops 1% as Iran attack, Wall Street sell-off fuel risk aversion

Domestic earnings produced some outsized losers as well, with drugmaker Astellas and department store operator Takashimaya tumbling close to 6% each.

The Nikkei lost 0.97% to 39,138.22 as of 0207 , though that was well off early losses of as steep as 1.78%.

The broader Topix sagged 0.37%.

An already sombre backdrop from losses of more than 1% across the major Wall Street benchmarks on Friday became even more gloomy after Iran launched an unprecedented attack on Israeli territory over the weekend.

"The risk-off mood is really pushing down on Japanese equities," said Kazuo Kamitani, an equities strategist at .

However, with the Nikkei's 25-day moving average set to move upwards from Tuesday as higher prices from before March 8 factor out, the technical picture is due to turn more positive, Kamitani said.

"Even though losses today probably can't be helped, from tomorrow onwards, Japanese stocks can turn higher," he said.

Of the Nikkei's 225 components, 181 fell versus 44 that rose.

Chip-making equipment giant was the biggest drag by index points with a 1.32% decline. Chip-testing machinery maker Advantest dropped 2.19%.

Daiwa Securities was the worst-performing financial stock on the Nikkei, down 1.82%. Securities firms were among the worst-performing industry groups on the , dropping 1.2%. Banks fell 0.74%.

Astellas pulled pharma to the bottom of the list, with a 1.89% slide for the sector.

Meanwhile, shippers and oil companies rose amid escalating Middle East tensions, adding 1.03% and 0.53% respectively.