The Nikkei Stock Average fell 0.7% to 68732.71 in early Asian trading, mirroring Wall Street's overnight losses driven by investor concerns over escalating Middle East tensions and stalled U.S.-Iran diplomatic efforts. Market participants remain cautious as Iranian officials have reportedly warned of potential escalation if ongoing negotiations fail to produce a resolution, adding to global risk-off sentiment.

Among the worst performers on Japan's benchmark index, Screen Holdings dropped 2.9%, while Lasertec declined 2.8% and Nippon Building Fund shed 2.4%. These losses reflect broader market weakness across technology and real estate sectors, as investors shift toward safer assets amid geopolitical uncertainty.

The yen remained relatively stable, with the dollar trading at 159.38 yen compared to 159.45 late Monday in New York. Currency markets have shown resilience despite equity market volatility, as the greenback's strength continues to offset some of the downward pressure on Japanese stocks.

Analysts from In Touch Capital Markets noted that the market's reaction underscores growing investor anxiety over the potential for prolonged conflict in the region, which could have significant implications for global energy markets and supply chains. The Nikkei's decline marks another session of cautious trading as Asian markets opened lower, following the lead of U.S. counterparts.