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Tokyo stocks closed lower on Tuesday, with the benchmark Nikkei briefly sliding more than 2 per cent, as the yen strengthened against the US dollar amid expectations of a larger interest rate cut by the US Federal Reserve this week. 

Japan's benchmark Nikkei stock index, the 225-issue Nikkei Stock Average, ended down 378.54 points, or 1.03 per cent, from Friday at 36,203.22. Japanese markets were closed on Monday for a national holiday, Xinhua news agency reported.

The broader Topix index, meanwhile, finished 15.38 points, or 0.60 per cent, lower at 2,555.76.

On the Tokyo stock market, insurance and bank shares led to an overall decline in falls in US and Japanese long-term bond yields. Automakers and other exporters also slid due to concerns over the strengthening yen, brokers said.

Market watchers here noted that Fed policymakers may opt for a half-percentage-point interest rate cut rather than a quarter-point reduction at the end of its two-day policy meeting Wednesday, which could push the US dollar below the 140 yen line and further weigh on Japanese shares.