The Nikkei initially snapped a three-day losing streak but momentum slowed as shares tracked a wider sell-off elsewhere in Asia.
Japanese banking giant Mitsubishi UFJ Financial (Berlin: MFZ.BE - news) joined local peers as it reported a slump in first quarter profit, lower than market expectations, as it was hit by write-downs related to bad-loans.
The blue chip Nikkei 225 (news) index fell 18 points to 12,914.
Oil related stocks slumped on the back of declining oil futures. Shares in Inpex dropped more than 4% after oil for September fell over $3 in New York overnight.
Commodities suffered a broad sell-off. Shares in steelmaker JFE Holdings (Frankfurt: 724564 - news) were down over 5% on concern about declining demand.
Clothing chain giant Fast Retailing weighed on the Nikkei, falling as much as 6% on Tuesday, as it revealed same-store sales at its Uniqlo casual clothing chain rose to a two year high.
Shares in heavyweights Canon (Berlin: CNN1.BE - news) , TDK (Frankfurt: 857032 - news) and Toyota provided some momentum on hopes that falling oil prices will boost consumer spending.
The weaker yen against the dollar also propped up exporters while bargain hunters picked up recently battered stocks.
Technology firms such as Kyocera (Munich: 860614 - news) and Tokyo Electron (Stuttgart: 865510 - news) enjoyed strong gains.
The Hang Seng fell sharply as a significant sell-off in commodities and jitters surrounding HSBC (LSE: HSBA.L - news) 's results hammered sentiment. The bank (TBHS - news) 's shares fell over 2% as investors mulled a sharp drop in profits and more write-down related to bad US home loan debts.
Hong Kong's Hang Seng (news) closed down 565 points at 21,949.
Concern about the financial sector trickled into commodities, with concern that there are more credit crunch related woes to come. CNOOC (0883.HK - news) sank over 5% as the price of crude fell sharply in New York.
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