The yen and Tokyo share prices took a beating Sept. 1 amid concern over economic prospects at home and Asia's currency turmoil.
The 225-issue Nikkei average fell 255.12 points, or 1.4 percent, to close at 17,974.30. The key market gauge closed below the 18,000 level for the first time in 4 1/2 months.
The dollar surged briefly above 121 yen for the first time in nearly four months.
Worries linger over Japanese industries' vulnerability to the wild gyrations in the Southeast Asian stock and currency markets. With its strong showing in New York and elsewhere over the weekend carrying over into Tokyo interbank trading, the dollar hit 121.18 yen before settling at 120.67-70 yen at 5 p.m., compared with 119.38-40 yen late Aug. 29.
Currency and economic worries aside, the widening interest rate gap between Japan and the United States is keeping players bullish on the dollar, said Akira Narumi, an analyst at Sakura Bank. He added, however, that an unchecked rise against the yen appears unlikely, pointing to the balance of payments disequilibrium now lopsidedly in Japan's favor as well as uncertainty about developments at the forthcoming meeting of finance ministers and central bank governors in Hong Kong later this month.