Japan's Nikkei average fell 0.8 percent on Wednesday as exporters such as Toyota Motor Corp. lost ground on a tumble in U.S. stocks and a stronger yen, and lower oil prices hit energy stocks.

But Kao Corp. rose on better-than-expected earnings and Kawasaki Kisen Kaisha Ltd. rose on a news report of robust quarterly earnings, helping the Nikkei trim some of its losses.

Shares of department store Mitsukoshi Ltd. surged on news of a tie-up with Isetan Co. Ltd. , but Victor Co. of Japan Ltd. (JVC) tumbled on its lower earnings outlook and uncertainty about its alliance plan with Kenwood.

Caution ahead of Sunday's election for half the seats in the upper house of Japan's parliament and worries about the yen, which rose to a 2 1/2-month high against the dollar, prompted selling across the board.

It's unclear if the yen's strength is temporary or if it's at a turning point and the trend is shifting completely, said Yasuo Yabe, director of sales at Meiwa Securities.

Yabe also said concern about U.S. subprime mortgage problems are seeping through into the market. There is concern investment money may be shrinking, he said.

The Nikkei lost 143.61 points to 17,858.42, its lowest close since June 27. The broader TOPIX index dipped 0.68 percent to 1,754.03.

Nomura Holdings Inc., Japan's largest brokerage, said after the market closed that its U.S. operations booked a 34.3 billion yen pre-tax loss in the April-June quarter, smaller than the 39.3 billion yen booked in January-March. It also said pulling out of the U.S. subprime mortgage market was an option.

While some said U.S. subprime mortgage problems and uncertainty over the U.S. economy were weighing on stocks, Masayuki Kubota, fund manager at Daiwa SB Investments' Japanese Equity Management Group, blamed Japan's fundamentals such as its aging population and sapping consumption.

Japan's aging population is a long-term issue but we see its impacts. The economy is growing but consumption is not picking up much, he said.

Trade volume was moderate with 2 billion shares changing hands, lower than average daily volume of 2.3 billion shares in June. Decliners swept past advancers by a ratio of three to one.

VICTOR HIT

Exporters were hit with Toyota down 1.3 percent at 7,410 yen and Canon Inc. falling 2 percent to 7,050 yen.

Victor Co. of Japan tumbled 10.2 percent to 342 yen and electronics firm Kenwood slipped 1.1 percent to 176 yen after news that Kenwood and asset manager Sparx Group will buy a combined stake of about 30 percent in JVC in a $291 million deal that will take loss-making JVC off the consolidated accounts of Matsushita Electric Industrial.

Matsushita Electric declined 3.6 percent to 2,285 yen.

In the retail sector, Mitsukoshi jumped 7.5 percent to 587 yen and Isetan was unchanged at 1,901 yen after a source familiar with the matter told Reuters that Japan's fourth- and fifth-largest department stores are in talks on a capital alliance and may seek a merger.

Earnings lifted Kao up 3.4 percent to 3,380 yen and profit prospects helped Kawasaki Kisen add 2.7 percent to 1,665 yen.

Lower U.S crude futures hit energy stocks such as Nippon Oil Corp., Japan's biggest oil refiner, which fell 3.9 percent to 1,121 yen.

Japan Nikkei 225