Markets in Tokyo have reacted to comments by US Federal Reserve Chair Jerome Powell on Friday that point toward a rate cut at the central bank's next policy meeting.

Investors sold the dollar for the yen and unloaded stocks in Japanese exporters.

Powell's remarks raised expectations that the interest rate gap between Japan and the US will narrow. This sent the dollar down 2 yen compared to before his speech.

The trend continued on Monday, with the Japanese currency appreciating to the 143-yen level. The yen's strengthening has prompted investors to sell shares of big Japanese exporters, including automakers. The benchmark Nikkei 225 finished at 38,110, down 0.6 percent.

Powell's speech on Friday was at the annual economic symposium in the western US town of Jackson Hole. He said, "The time has come for policy to adjust," indicating a rate cut is likely coming at the Fed's policy meeting in September.

Also on Friday, Bank of Japan Governor Ueda Kazuo indicated that the BOJ will not hesitate to raise interest rates as long as the state of the economy and inflation allows it to do so.

Analysts say that the yen is also being bought on concerns over the situation in the Middle East. There are fears the region may further destabilize after Lebanon's Hezbollah exchanged missile strikes with Israel.