The 225-issue Nikkei Stock Average dropped 953.15 points, or 3.29 percent, from Friday to close the day at 28,010.93.
The broader Topix index of all First Section issues on the Tokyo Stock Exchange, meanwhile, lost 47.11 points, or 2.42 percent, to finish at 1,899.45.
Local brokers said that St. Louis Federal Reserve President James Bullard saying late last week that a rate hike could occur sooner than expected and as early as late 2022 due to a rise in inflation sparked a sell-off on Wall Street.
Tokyo inherited Wall Street's panicky mood, they added, which was punctuated by last week's suggestion by the Fed after its policy meeting that rates could be hiked at an earlier juncture, raising concerns its timeline for tapering stimulus could be accelerated.
However, some strategists said the market overacted and the Fed's indications were both dovish and, in fact, a sign of a recovering economy.
"Investors overreacted to Mr. Bullard's remarks, as he was widely seen as dovish," Toshikazu Horiuchi, equity strategist at IwaiCosmo Securities Co., was quoted as saying.
Similarly, Shuji Hosoi, senior strategist at Daiwa Securities, said, "The Japanese market is reacting too much. First of all, rate hikes are signs of an economic recovery."
Dealers here also said, however, that while further volatility could be expected this week, the market would likely be supported by Japan's efforts to ramp up its vaccination rollout.
Numerous businesses and universities here on Monday began administering vaccinations with applications to inoculate 13.73 million people at 3,479 venues having been accepted by the government as of late last week.
Major businesses administering jabs included SoftBank Group Corp., Central Japan Railway Co. and Itochu Corp.
Universities beginning their vaccination initiatives comprised Keio University, Tohoku University and Hiroshima University, among others.
"But Japan needs to find its own consistent reason for a market rebound as Japanese companies are already speeding up vaccine rollouts for their employees. A steady vaccine rollout could be a major reason for an economic recovery," Hosoi also said.
Investors, nevertheless, opted to switch out of riskier assets like stocks and into perceived safe havens like the Japanese yen, which saw the U.S. dollar drop into the upper 109-yen zone.
The majority of industry categories retreated, with rubber product, chemical and insurance issues comprising notable decliners.
Nikkei heavyweights lost ground, with SoftBank Group slumping 3.5 percent, while Uniqlo casual clothing chain operator Fast Retailing dropped 4.4 percent.
Chip-related issues also came under heavy selling pressure, with Shin-Etsu Chemical falling 5.7 percent, while Tokyo Electron ended the day 4 percent lower.
Industrial robotics maker Fanuc also closed in negative territory, losing 5.6 percent.
By the close of play, issues that fell outpaced those that rose by 2,044 to 123 on the First Section, while 26 ended the day unchanged.
On the main section on Monday, 1,301.08 million shares changed hands, dropping from Friday's volume of 1,512.55 million shares.
The turnover on the first trading day of the week came to 2,946.68 billion yen (26.79 billion U.S. dollars).
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