Japan's Nikkei stock average fell 0.7 percent on Wednesday and was on track for its lowest close since July, dragged lower by banking and real estate shares on fundraising concerns. Shares in Japan Airlines Corp fell to their lowest level since their 2002 re-listing on Wednesday after Japan's transport minister commented he had never said a court-led bankruptcy for the troubled airline was impossible, and despite a report that private equity firm TPG may invest as much as $1.1 billion.

"Investor sentiment is pretty bad right now, it seems there is no end to negative factors," said Noritsugu Hirakawa, a strategist at Okasan Securities.

"We have the strong yen, fundraising worries, political uncertainty, concern about banks, and JAL."

The benchmark Nikkei lost 66.87 points to 9,663.06 and appeared on track for its lowest close since July. The broader Topix lost 1.3 percent to 845.77, its lowest since May.

The Democrat-led government, which took office in mid-September, is caught between a rock and a hard place in its economic management. Bond yields have risen this month as investors become increasingly worried about a surge in issuance as tax revenues slide. But at the same time, government stimulus is driving economic growth so a cut in state spending could send the economy back into recession amid talk of a renewed risk of deflation. The real estate sub-index fell 5.1 percent, becoming the second-biggest loser among the subindexes, with Tokyo Tatemono Co sliding 18.1 percent to 317 yen after the company said on Tuesday it plans to raise as much as $512 millionin a global share offering to repay debt and fund new investments.

Japanese companies have already raised $40 billion through issuing common stock and convertible bonds this year, tapping a modest share market rebound for much-needed cash after the financial crisis -- but at the same time heavily diluting the holdings of their current shareholders.

The flurry of capital-raising and market expectations fr more to follow, is one reason why Japanese shares have been left behind in this year's rally in global equities, market players say. Mitsubishi UFJ Financial Group, Japan's biggest bank, is set to announce results after the bell on Wednesday and attention will be on whether or not it also announces a new share issue.

Three sources told Reuters on Saturday the bank was planning to announce the fundraising by the end of this year.

"There's some caution out there about this and that's keeping people from buying all the banks," said Okasan's Hirakawa. MUFG lost 2.9 percent to 473 yen, No. 3 bank Sumitomo Mitsui Financial Group shed 5.8 percent to 2,855 yen and Mizuho Financial Group fell 4.1 percent to 163 yen.

Sumitomo Realty & Development lost 6 percent to 1,476 yen, Mitsui Fudosan shed 3.9 percent to 1,394 yen and Mitsubishi Estate fell 4.5 percent to 1,307 yen.