Japan's Nikkei dropped on Tuesday morning as a stronger yen hurt the risk sentiment, with cyclical stocks such as shippers, machinery stocks and automakers losing ground.

The Nikkei share average dropped 0.1 per cent to 22,170.54 in midmorning trade. The broader Topix shed 0.3 per cent to 1,687.87. Declining issues outnumbered advancers 1,519 to 492.

The dollar dropped 0.18 per cent to 109.87 yen, after falling below the psychologically-significant 110 yen level for the first time since June 28 after US President Donald Trump criticised the Federal Reserve for raising interest rates.

Analysts said that the Japanese market is expecting thin summer trade again on Tuesday after Topix's volume and turnover hit the lowest since early April on Monday. They added that investors' risk appetite is low amid uncertainty over the lower-level trade talks between the United States and China due to start later on Tuesday.

“Investors are staying on the sidelines as we don't know what the outcome will be. The market could go in any direction after the talks,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

Against a backdrop of global trade disputes, Trump said in an interview with Reuters on Monday that China was manipulating the yuan to make up for having to pay duties imposed by Washington on some imports from China.

Tuesday's notable losers include shippers, with Mitsui OSK Lines falling 1 per cent and Kawasaki Kisen shedding 0.9 per cent. Electronics shares also lost ground, with Panasonic declining 2.0 per cent, Alps Electric falling 2.7 per cent and Taiyo Yuden declining 2.1 per cent. Subaru Corp dropped 0.9 per cent and Mazda Motor shed 0.7 per cent.

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