Tokyo stocks were down 1.52 percent Wednesday morning as the yen rebounded, while Boeing Dreamliner suppliers fell after two Japanese airlines grounded their fleets of the aircraft.
The benchmark Nikkei 225 index gave up 165.60 points at 10,713.48 by the break while the broader Topix index of all first-section shares was down 1.11 percent, or 10.03 points, at 896.19.
"The market could be at a turning point, as the resurgent yen sparks selling," said Investrust CEO Hiroyuki Fukunaga.
Japan's All Nippon Airways (ANA) and Japan Airlines (JAL) were mixed after an ANA Dreamliner flight made an emergency landing in Japan, the latest in a string of problems to hit Boeing's new aircraft.
The country's two biggest airlines grounded their Dreamliner fleet Wednesday in the wake of incident.
The 787 Dreamliner has suffered more than a week of bad news that has prompted investigations by aviation regulators in Japan and the United States, Boeing's home market, although the US manufacturer insists the plane is safe.
Analysts said the impact on the Japanese carriers, two of the Dreamliner's biggest buyers, may be limited unless there are technical defects with the aircraft and regulators probing the incidents order major repairs.
"That would have a really grave impact because both JAL and ANA plan to put the aircraft into their European and American routes to compete with LCCs (low-cost carriers)," said Waseda University professor Hajime Tozaki, an expert on aviation policy.
ANA shares were down 1.08 percent at 183 yen in Tokyo trade while Japan Airlines was up 0.83 percent to 3,640 yen.
Dreamliner suppliers took a hit in early afternoon trade with Mitsubishi Heavy down 2.83 percent at 480 yen, battery maker GS Yuasa tumbling 4.46 percent at 321 yen and Toray Industries, which supplies lightweight carbon fibre materials, falling 4.32 percent at 509 yen.
On forex markets, the dollar slipped to 88.23 yen against 88.80 yen in New York Tuesday afternoon, while the euro fetched 117.22 yen against 118.14 yen in US trading.
A weaker yen is good for Japan's exporters -- and tends to boost their shares -- because it makes their products more competitive overseas, while strengthening tends to weigh on the local stock market.
The unit's rebound came in the wake of Japan's economy minister warning Tuesday over the currency's rapid decline, saying it could hit consumers by making imported goods more expensive.
Investors largely shrugged off a better-than-expected 3.9 percent on-month rise in November Japanese machinery orders, released Wednesday.
US stocks were mixed overnight after the release of upbeat retail sales for December, with the Dow Jones Industrial Average gaining 0.20 percent to 13,534.89 while the tech-rich Nasdaq Composite fell 0.22 percent to 3,110.78.
-- Dow Jones Newswires contributed to this report --