Japanese markets fell notably after two days of strong gains on U.S.-Japan trade deal optimism. The Nikkei average dropped 0.88 percent to 41,456.23 while the broader Topix index, which hit a record high the previous day, closed 0.86 percent lower at 2,951.86.

Industrial robot maker Yaskawa Electric slumped 6 percent to snap a three-day winning streak. Mitsubishi Motors plummeted almost 8 percent after first-quarter operating profit fell short of projections.

The yen declined as data showed Tokyo CPI inflation eased more than expected in July, complicating the Bank of Japan's interest-rate hike prospects.

Producer prices in Japan were up 3.2 percent on year in June, the Bank of Japan said on Friday. On a monthly basis, producer prices slipped 0.1 percent for the second straight month.

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