The Nikkei share average fell 2.24% to 27,488.25 by 0215 GMT, falling below the 28,000 mark for the first time since June 21. The broader Topix dropped 1.92% to 1,883.38
In the spot market, onshore yuan opened at 6.4625 per dollar and was changing hands at 6.4571 at midday, 69 pips firmer than the previous late session close.
Official comments suggested that "policymaker's pessimistic expectations for the domestic economy have risen significantly," analysts at Guotai Junan Securities wrote in a note.