By Agence France-Presse
The benchmark Nikkei 225 index was down 1.08 percent or 235.19 points at 21,585.97 in early trade, while the broader Topix index was down 0.97 percent or 15.91 points at 1,621.70.
Nissan shares traded 6.05 percent lower at 944.6 yen after dipping to a low of 940 yen, down 6.51 percent, at one point.
Mitsubishi Motors was down 5.89 percent or 43 points at 687 yen.
The dollar fetched 112.50 yen in early Asian trade, against 112.54 yen in New York and 112.77 yen in Tokyo on Monday.
Declines in Japanese shares come after worries about the US-China trade war and slowing technology sector growth battered Wall Street on Monday.
French auto giant Renault also plunged on a burgeoning scandal surrounding Ghosn, who heads the Renault-Nissan-Mitsubishi alliance.
"Losses in US shares and a higher yen is weighing on the market... while the impact of the arrest of Nissan chairman Ghosn would be limited to related companies," Yoshihiro Ito, chief strategist at Okasan Online Securities, said in a commentary.
Elsewhere in Tokyo, game giant Nintendo was down 2.60 percent at 32,240 yen and Sony was down 2.02 percent at 5,772 yen.
On Wall Street, the Dow closed down 1.6 percent at 25,017.44 while the tech-rich dived 3.0 percent to end at 7,028.48.