Tokyo's Nikkei closes down more than 2% on trade fears

Tokyo's benchmark Nikkei index plunged more than two percent on Monday as the yen surged against the dollar on escalating US-China trade tensions.

The Nikkei 225 fell 2.17 per cent, or 449.87 points, to close at 20,261.04, while the broader Topix index lost 1.61 percent, or 24.22 points, to 1,478.03.

The dollar, which dropped below 105 yen in early trade, changed hands at 105.24 yen against the dollar in Asian afternoon trade from 105.39 yen in New York on Friday.

The greenback's fall came after US President Donald Trump said he is raising tariffs on Chinese imports in response to Beijing's threat to impose an additional levy on American goods.

"The market sharply reacted to retaliations by the US and China," said Yoshihiro Okumura, general manager at Chibagin Asset Management.

Earlier in the day, the yen hit the highest level against the dollar since November 2016, when the US currency weakened on expectations of then-president-elect Trump's fiscal expansion policy.

"If the yen rises further, it's going to be serious for Japanese exporters," Okumura said.

"Trading is expected to remain sensitive for the rest of the week," he added.

The fall in Tokyo shares was led by exporters, with Toyota losing 0.67 per cent to 6,869 yen and Nissan down 1.53 per cent at 648.8 yen.

Nintendo dropped 2.83 per cent to 39,820 yen as Sony fell 1.08 per cent to 5,839 yen.