The Nikkei was at 16,964.46 points by midmorning, after posting its biggest one-day drop in seven weeks and nearing its six-week low of 16,672.94 hit on Dec. 17.
Crude oil futures prices dropped to their lowest since 2009 amid a global supply glut and lacklustre demand, while political uncertainty in Greece has renewed fears of a Greek exit from the euro zone.
"We had expected that the market will recover after the new year started. A further drop in oil prices was a negative surprise to the market," said Hikaru Sato, a senior technical analyst at Daiwa Securities.
"We need to be a little more patient to see good news. Japanese companies are expected to start reporting strong third-quarter earnings later this month, so until then, the market may struggle."
He also said that hopes that the Bank Of Japan will buy stocks during market's weakness are supporting sentiment. The central bank data showed that it bought 37.4 billion yen worth ETFs on Monday, when the market was falling in the morning.
Oil and mining shares were the worst performers, with the mining subindex tumbling 5 per cent. Inpex Corp fell 5.4 per cent and Japan Petroleum Exploration dropped 3.5 per cent.
The yen gained against the dollar as investors sought the traditional safety of the Japanese currency amid worries about global growth. The dollar dipped below 120.00 yen from Monday's high of 120.68, moving further away from a seven-year peak of 121.86 set last month.
Exporters were hit, with Toyota Motor Corp falling 2.0 per cent, Honda Motor Co dropping 1.9 per cent and Komatsu Ltd slipping 2.7 per cent.
The broader Topix dropped 2.3 per cent to 1,368.98, with all of its 33 subsectors in negative territory.
The JPX-Nikkei Index 400 shed 2.3 per cent to 12,403.27.
(Copyright: Thomson Reuters 2015)