Tokyo stocks closed down over two percent on Monday as Chinese stocks tumbled ahead of the expected imposition of US tariffs and confidence among Japan's biggest manufacturers slipped. The benchmark Nikkei 225 index dropped 2.21 percent, or 492.58 points, to end at 21,811.93, while the broader Topix index was down 2.06 percent, or 35.60 points, to 1,695.29.
"Caution remains strong over the Trump administration's trade policy towards China," said Makoto Sengoku, market analyst at Tokai Tokyo Research Institute. "It is hard to predict exactly how the real economy as well as market sentiment would be affected" with the US administration poised to roll out tariffs on some $34 billion of Chinese imports on Friday, he told AFP.
A quarterly survey from the Bank of Japan showed confidence among major manufacturers slipping for the second straight quarter, but Sengoku said its negative impact on markets was small compared with the broader concerns over global trade. The headline reading in the June report came in at a slightly worse-than-expected 21, down from 24 in March.
"The reading was not a positive factor but didn't fall so deeply, despite the tough conditions in the April-June period ranging from the US-China trade spat to concerns over Europe" after the political shake-up in Italy, Sengoku said.
The yen has not strengthened enough to dampen Japanese exports, underpinning exporters' sentiment, he added.
The dollar was trading at 110.73 yen against 110.61 yen in New York on Friday.
In Tokyo share trading, Nissan dropped 2.31 percent to 1,053 yen while Toyota fell 1.42 percent to 7,068 yen.
Nintendo was down 1.24 percent to 35,750 yen and Sony lost 1.21 percent to 5,595 yen. Telecom giant SoftBank rose 0.33 percent to 8,000 yen while electronics components maker Murata inched up 0.13 percent to 18,645 yen.