Tokyo stocks fell 1.45% on Friday as the yen strengthened while construction and real estate firms were hit by speculation that Japan would lose its bid to host the 2020 Olympics.
The benchmark Nikkei 225 index closed 204.01 points lower at 13,860.81, while the Topix index of all first-section shares declined 0.87%, or 10.02 points, to 1,147.82.
The Nikkei had opened modestly higher after U.S. stocks edged up on Thursday.
But those early gains quickly eroded as investors hit the sell button on growing speculation that Madrid beat Tokyo and Istanbul in the race to stage the Olympics.
"A great deal of buying had taken place based on expectations for a Tokyo win, but this optimism is apparently fading," Tachibana Securities market advisor Kenichi Hirano said.
"And so the air is now coming out of sectors seen benefiting from the infrastructure spending that would have ensued, such as the construction and real estate sectors," Hirano added.
Adding to selling pressure was a fall in the value of the dollar against the yen.
The greenback, which on Thursday broke above 100 yen for the first time since July, dipped to 99.78 yen Friday, compared with 100.12 yen late in New York.© (C) 2013 AFP