Japan's Nikkei share average dropped to a level unseen since mid-October as it fell for a fourth day as fears that a global trade war could break out hurt steelmakers, automakers and shipping companies.

The Nikkei ended 0.7 per cent lower at 21,042.09, after the yen got a lift from safe-haven flows as risk sentiment soured on expectations that trading partners will retaliate if US President Donald Trump presses ahead with proposed tariffs on imported steel and aluminium.

Small cap stocks were sold as well, with traders citing retail investors' speculative selling on the assumption that the market's weakness will persist for a while. The Mothers index tumbled 2.9 per cent to a 2-1/2-week low of 3,471.02.

Steel shares tumbled again, with Nippon Steel & Sumitomo Metal dropping 1.8 per cent, JFE Holdings falling 2.5 per cent and Kobe Steel sliding 1.5 per cent.

Automakers, big consumers of steel and aluminium, also lost ground. Honda Motor Co fell 2.1 per cent and Toyota Motor Corp dropped 1.5 per cent. Shippers were sold, with Mitsui OSK Lines falling 1.9 per cent and Kawasaki Kisen off 2.0 per cent.

With the dollar falling for a fourth straight session, investors have started to worry that export driven Japanese companies will have to lower their dollar-yen assumptions for the next fiscal year, which would impact their profit outlook.

The dollar stood at 105.59 yen, slightly above Friday's low of 105.23, a level not seen since November 2016. The broader Topix dropped 0.8 per cent to 1,694.79.