By Joshua Hunt
TOKYO, Jan 7 (Reuters) - Japanese stocks fell on Thursday morning after China's central bank weakened the yuan - sparking a sharp strengthening of the yen, hurting exporters and tarnishing sentiment in a market already on edge over geopolitical tensions and signs that China's economy is slowing.
A selloff on China's benchmark Shanghai composite index .SSEC eventually led to the triggering of a circuit breaker, which halted trading after the index lost 7.3 percent. It marks the second time this week that the new circuit breaker has halted trading in China's volatile markets.
The Nikkei share average .N225 fell 1.8 percent to 17,867.04.
"The weakening of the Chinese RMB seems to have spooked the yen and by extension the Nikkei in an already nervous and shell-shocked market that's worried about dynamics both economic and geopolitical," said Stefan Worrall, director of Japan equity sales at Credit Suisse (VX:CSGN).
"In these last couple of days the yen has moved in a way that chartists have called a break from the weakening trend of Abenomics that we've seen for the past few years, and in that kind of environment the market becomes incredibly vulnerable to events like the RMB failing to stabilize."
Sony Corp 6758.T tumbled 3.9 percent during the morning session. Market participants said the slide was probably tied to the fact that Sony's news conference at the CES trade show in Las Vegas did not include a release date or pricing details for its announced virtual reality headset.
Oculus, the virtual reality company owned by Facebook (O:FB), announced at the trade show that its Rift headset will cost $599 and be shipped from March 28 to 20 countries. The Rift will come bundled with an Xbox One controller and two games for Microsoft (O:MSFT)'s flagship console, the chief competitor for Sony's PS4.
Major exporters and blue chip stocks declined broadly. Panasonic Corp 6752.T shares fell 1.4 percent and Toyota Motor Corp 7203.T slipped 2.3 percent.
The Topix subindex for iron and steel .ISTEL.T shed 3 percent, putting it among the worst performing sectors of the morning session.
The broader Topix .TOPX fell 1.6 percent to 1,464.65 and ended the morning session with all of its 33 subindexes in negative territory.
The JPX-Nikkei Index 400 .JPXNK400 slipped 1.6 percent to 13,192.24.