Japan stocks close down amid U.S. debt worries

Japan's benchmark Nikkei average closed down 0.8 percent at 10,050.01, led by shares of clothing chain company Fast Retailing which fell 1.5 percent after hitting a 13-month high last Friday. The broader Topix shed 0.8 percent to 861.91.

In Washington, U.S. lawmakers remain divided on the U.S. debt ceiling as several news outlets reported U.S. President Barack Obama and top Republican lawmakers are close to a deal to slash up to $3 trillion in debt over 10 years. This would remove the political hurdle to raise the statutory $14.3 trillion borrowing limit.

Analysts said the U.S. debt crisis would bring a power-shift in the global economy, but the U.S. will hold its position as a financial superpower as investors have no alternatives to investing in U.S. Treasuries.

"I think its kind of a power movement after 9/11 and Lehman issues that the United States is becoming one of the major countries rather than the most strong country. So this weak dollar and this debt issue is kind of alongside the movement of let's say a weakening US economy. But I think the world has to live with that and having said that we don't have in alternatives for the investment outside the United States," said CEO of Fukoku Capital Management, Yuuki Sakurai.

China and Japan are by far the world's biggest foreign owners with more than $2 trillion in treasuries combined, and no other market in the world is deep enough to absorb that size of investment.

"Still the United States is the center of the standard of all the rules in the world. So they may have a technical default but I don't think that will mean that people will stop buying treasuries or stop buying dollars because you don't have alternative investment tools," Sakurai added.

The dollar was down slightly against the yen at 78.40 yen.

Japan's yen has been a big beneficiary of global worries about both U.S. and European sovereign debt sustainability, and Tokyo has expressed concern that the strengthening yen will hurt its exporters.