Japan's benchmark Nikkei stock index, the 225-issue Nikkei Stock Average, ended down 254.05 points, or 0.66 percent, from Friday to close the day at 38,110.22.
The broader Topix index, meanwhile, finished 23.31 points, or 0.87 percent, lower at 2,661.41.
On the forex market, the yen strengthened to the mid-143 range against the dollar, a level not seen in about three weeks, sparking concerns about worsening export margins for Japanese companies.
Market watchers here noted that the yen's rise exerted downward pressure on export-related stocks, particularly in the automotive sector, leading the Nikkei index to drop over 500 points during the morning session.
The speculation of a U.S. rate cut was fueled by remarks from Fed Chair Jerome Powell during the Jackson Hole symposium last week, where he hinted at a possible rate cut in September, further boosting the yen and pressuring export stocks, according to local analysts.
Declining issues outnumbered advancing ones by 830 to 773, with 43 issues remaining unchanged.
Tokyo Electron, Advantest, and TDK were among the notable decliners, while Fast Retailing, Nitori Holdings, and Daikin Industries posted gains.
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