Japanese stocks sold off in a mostly positive Asian session on Tuesday, dragged by fresh strength in the yen after a local media report suggested the government's highly anticipated stimulus package may not live up to expectations.
Other Asian markets retraced early losses, shrugging off declines in U.S. stocks after lower oil prices weighed on the energy sector on Monday.
In Hong Kong, the Hang Seng index traded up 0.82 percent in late-afternoon trading, reversing earlier losses of 0.32 percent. Chinese mainland shares gained, with the Shanghai composite closing up 34.35 points, or 1.14 percent, at 3,050.18, and the Shenzhen composite was higher by 25.14 points, or 1.24 percent, to 2,044.96.
In Japan, the Nikkei business daily reported Prime Minister Shinzo Abe's government was looking to inject 6 trillion yen ($56.7 billion) in direct fiscal outlays into the economy over the next few years. The amount was double than what was initially planned, the Nikkei said, adding it would be announced as early as August 2.
The fiscal stimulus package will be funded through a supplementary budget, the fiscal 2017 spending plan and other lending facilities, the Nikkei reported. The supplementary budget for fiscal 2016 will likely provide around 2 trillion yen, including 1.3 trillion yen or so for public works, said the Nikkei.
But that may have disappointed a market looking for as much as 10 trillion to 20 trillion yen in fiscal stimulus.
"If [the 6 trillion yen stimulus package] is the final outcome, and there are a number of permutations to be deciphered, including how the new spending as a portion of the total, markets will rightly be disappointed," said Patrick Bennett at CIBC Capital Markets.
Others said the lack of a large fiscal stimulus will see limited impact from any monetary policy expansion that the Bank of Japan (BOJ) might undertake when it meets later this week.
"It seems the 10 trillion yen fiscal stimulus was a mirage," said Takuji Okubo, principal and chief economist at Japan Macro Advisors. "The BOJ is likely to stop short of implementing drastic easing measures this Friday."
The Japanese currency jumped, with the dollar/yen pair trading at 104.12, down from levels above 107 last week.