By Agence France-Presse
The benchmark Nikkei 225 index fell 1.09 percent, or 238.04 points, to close at 21,583.12, while the broader Topix index was down 0.73 percent, or 11.94 points, at 1,625.67.
Nissan shares lost 5.45 percent to 950.7 yen after dipping to a low of 940 yen, down 6.51 percent, at one point.
Mitsubishi Motors was down 6.84 percent to 680 yen.
The dollar fetched 112.52 yen in Asian afternoon trade, against 112.54 yen in New York and 112.77 yen in Tokyo on Monday.
Declines in Japanese shares came after worries about the US-China trade war and slowing technology sector growth battered Wall Street on Monday.
French auto giant Renault also plunged in Paris on a burgeoning scandal surrounding Ghosn, who heads the Renault-Nissan-Mitsubishi alliance.
"The Nissan case gave some uncertainties to the market," said Daiwa Securities senior technical analyst Hikaru Sato.
"The case affected the auto sector partially, but the impact is still limited," Sato told AFP.
Honda lost 0.40 percent to 3,166 yen but Toyota gained 1.58 percent to 6,717 yen.
Elsewhere in Tokyo, game giant Nintendo was down 5.67 percent at 31,220 yen and Sony was down 3.08 percent at 5,709 yen.