TOKYO: Japanese shares retreated on Tuesday as the combination of the yen's rise to a near six-month high versus the dollar and brewing U.S.-Iran tensions hit exporters and curbed risk appetite.
The Nikkei ended the day down 0.43% at 21,193.81.
Tensions between the United States and Iran remained high, with Tehran saying that a U.S. decision to impose sanctions on the country's supreme leader and other top officials permanently closed the path to diplomacy.
The tense backdrop underpinned the safe-haven yen, which stretched its gains to 106.780 per dollar - its strongest since the start of January.
Shares of blue-chip exporting companies sagged on the yen's appreciation.
Toyota Motor Corp lost 0.6%, Honda Motor Co was down 0.7%, Hitachi Ltd dropped 1.1% and Tokyo Electron fell 3.3%.
Ahead of the June 28-29 G20 summit in Japan, overall selling pressure was relatively limited. At 1.73 trillion yen, turnover for the broader Topix was not much higher than Monday's 1.4 trillion yen, which was the lowest since December 2014.
U.S. President Donald Trump and Chinese President Xi Jinping will discuss trade issues at the G20 in their first face-to-face meeting since trade negotiations broke down in May.
"A major breakthrough in trade talks is unlikely but the United States and China might agree to keep the dialogue going at the G20. That could be enough to fuel 'risk on'," said Takashi Hiroki, chief strategist at Monex Securities.
Shares of companies related to national defence gained after a report that Trump had recently spoken privately about withdrawing from the defence treaty with Japan.
Defence equipment maker Ishikawa Seisakusho Ltd rose 8.5%, Howa Machinery Ltd, which makes firearms, gained 3.5% and flare manufacturer Hosoya Pyro-Engineering Co advanced 6.4%.
Ichibanya Co rallied 5.5% after the curry restaurant chain operator said its operating profit for the March-May period rose 40.7%.
Japan Communications Inc surged 6.7% after the provider of mobile communications services said it will begin sales of SIMs for citizen broadband radio services (CBRS) in the United States.
Of Tokyo's 33 sub-indexes, 24 were in negative territory.
Declining shares outnumbered gainers 1,209 to 821.
The broader Topix edged down 0.27% to 1,543.49.
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