Japanese markets tumble after last week's rally

Japanese markets tumbled on profit taking after last week's sharp rally. The Nikkei average fell 1.77 percent to 37,388.62, snapping a five-day winning streak as the yen strengthened on dovish Fed expectations.

The broader Topix index settled 1.40 percent lower at 2,641.14 ahead of the release of Japanese inflation data due this week.

Investors ignored data that showed Japan's core machinery orders rose more than expected in June compared to month ago.

Automakers Honda, Nissan, Mitsubishi and Toyota dropped 1-3 percent. Retailer Seven & I Holdings surged 22.7 percent after receiving a takeover bid.

Core machinery orders that exclude volatile orders for ships and electric utilities, expanded 2.1 percent from the prior month, faster than the expected 0.9 percent increase and reversed May's 3.2 percent decline.

Meanwhile, core machinery orders posted an annual decline of 1.7 percent, in contrast to the 10.8 percent increase in May.

In the second quarter, core machinery orders were down 0.1 percent. This follows the 4.4 percent increase seen in the preceding quarter. Core orders are forecast to grow 0.2 percent in the third quarter.

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