Japan's Nikkei 225 index fell 1.47 percent to 39,307.05 on the first trading day of 2025. Japanese financial markets were closed from last Tuesday for the New Year holidays.
The broader Topix index settled 1.02 percent lower at 2,756.38 while the yen fell under pressure from higher U.S. Treasury yields.
Earlier in the day, a measure of Japan's service sector activity signaled rising prices and wages, potentially supporting a January BoJ rate hike.
The services sector in Japan continued to expand in December, and at a faster rate, the latest survey from Jibun Bank revealed on Monday with a services PMI score of 50.9.
That's up from 50.5 in November, and it moves further above the boom-or-bust line of 50 that separates expansion from contraction.
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