By Dominic Lau and Sophie Knight
TOKYO (Reuters) - Japan's Nikkei average fell 1 percent to a two-week closing low on Tuesday after the Bank of Japan eased monetary policy by increasing the size of its asset buying and lending programme by $138 billion, largely as expected.
The Nikkei closed 87.36 points lower at 8,841.98 after trading 0.4 percent higher on the day before the BOJ announcement, which came shortly before the market close. The fall took the benchmark just below its 25-day moving average at 8,843.70.
"It was in line with expectations. The market's reaction suggests it didn't exceed expectations, particularly because people spent the day pushing the index higher," said Hideyuki Ishiguro, a senior strategist at Okasan Securities.
The benchmark Nikkei has been buoyed over the past month by a softer yen amid expectations that the BOJ would ease monetary policy further. The index is up 4.6 percent this year.
Honda Motor Co <7267.T> shed 2.8 percent, extending the pervious session's 4.7 percent decline after the carmaker cut its full-year net profit forecast by a fifth due to slowing sales in China over a territorial dispute. It was the third-most traded stock on the main board by turnover.
Rival Nissan Motor Co <7201.T>, which has the largest exposure to China among the Big Three Japanese automakers, lost 2.5 percent, while Toyota Motor Corp <7203.T> eased 0.5 percent.
The BOJ announcement, pledging to expand its through its asset buying and lending programme to 91 trillion yen, also weighed on the dollar, which eased to trade at 79.41 yen.
A strong yen dampened the shares of exporters, with Sony Corp <6758.T> down 1.3 percent and construction machinery maker Komatsu Ltd <6301.T> off 1.6 percent.
"It was within expectations and that's why the Nikkei immediately fell on the news. Lots of people had been buying up dollars on the expectations they would do what they did," said Shigeo Mito, manager of equity investment at Sumitomo Mitsui Trust Bank.
"The trouble is that U.S. markets are closed tonight so there's not much to go on tomorrow. People are waiting for the U.S. employment figures out on Friday so we might have a wait-and-see mood from tomorrow."
The broader Topix <.TOPX> lost 0.9 percent to 733.46 in active trade, with 2.04 billion shares changing hands, up from Monday's 1.42 billion shares and hitting a near two-week high.
Sharp Corp <6753.T> swam against the tide, up 6.2 percent after the Kyodo news agency quoted sources as saying that the struggling TV maker had entered into talks with Apple Inc
Nomura Holdings <8604.T> added 1.4 percent after Japan's top brokerage posted its fourth straight quarterly profit as an upswing in its fixed income operations helped it counter weak equity markets and the fallout from an insider trading probe.
Other gainers included Keyence Corp <6861.T>, which jumped 6.1 percent as analysts expected the maker of detection devices and measuring control equipment to post strong full-year earnings after it reported its first quarter results ended September.
The quarterly earnings season has still been weak so far, with 63 percent of the 27 Nikkei companies that have reported undershooting market expectations as of Monday, according to Thomson Reuters StarMine. That compared with 54 percent in the previous quarter.
(Editing by Richard Pullin)