The Nikkei 225 Index slipped 0.3% to close at 66,734 on Tuesday, while the broader Topix Index fell 0.42% to 3,924. The pullback came as Japanese equities retreated modestly from record levels amid ongoing geopolitical uncertainty.

Reports indicated that Tehran suspended talks with Washington following Israeli strikes in Lebanon, though US President Donald Trump said negotiations were still continuing. Domestically, markets are factoring in about a 78% chance that the Bank of Japan will raise interest rates later this month, as inflation pressures linked to the Middle East conflict persist.

Among individual stocks, Murata Manufacturing dropped 2.5%, Fujikura fell 2.2%, Furukawa Electric lost 2.3%, Mitsubishi Heavy Industries declined 3.3%, and Toyota Motor slipped 2.1%. On the other hand, SoftBank Group gained 1.1%, extending its rally after Wall Street's tech surge driven by the launch of a new PC chip.

Overall, Japanese markets cooled slightly, reflecting caution over global tensions and expectations of tighter monetary policy.

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