* Cosmetics, toiletry makers outperform
* Current dollar-yen levels above what Japan Inc expects - analyst
* BOJ two-day rate review starts on Wednesday, no changes seen
TOKYO, July 19 (Reuters) - Japanese stocks edged up in choppy trade on Wednesday, with buying in defensive stocks offsetting worries about the impact of a stronger yen as the U.S. dollar flounders.
The Nikkei share average was up 0.1 percent to 20,020.86 after dipping into negative territory.
U.S. Republican senators' effort to pass their own healthcare overhaul bill collapsed late on Tuesday, stoking doubts over the likelihood that Trump's growth-oriented economic agenda would come to fruition, sending the dollar lower.
The firmer yen hit such cyclical stocks as automakers, while lower U.S. yields dragged down banks as well as insurers.
Toyota Motor Corp shed 0.8 percent, Nissan Motor Co declined 1.2 percent, Mitsubishi UFJ Financial Group fell 0.5 percent and Dai-ichi Life Holdings dropped 1.0 percent.
However, most investors on Wednesday downplayed the impact of a stronger yen on exporters' earnings, which limited the losses.
"The current dollar-yen level is still above what most manufacturers expect this year, which is 108.80 yen," said Nobuhiko Kuramochi, a strategist at Mizuho Securities, adding that the market expects strong earnings for April-June quarter, which start coming out later this month.
In afternoon trade, the dollar was nearly flat at 112.06 yen , after falling as low as 111.685 on Tuesday, its lowest since June 27.
On Wednesday, defensive stocks attracted buying. Cosmetics maker Shiseido Co gained 0.9 percent, toiletry goods maker Kao Corp surged 3.2 percent and brewer Kirin Holdings Co jumped 2.2 percent.
"Investors are seen reducing exposure to currency-sensitive stocks and U.S. yield-sensitive shares like banks. There seems to be portfolio rebalancing and they are adding defensive stocks," said Chihiro Ohta, general manager of investment research at SMBC Nikko Securities.
A Reuters poll showed that Japanese manufacturers' and service providers' business confidence remained high in July, underlining the central bank's upbeat view on the economy.
At a two-day rate review that ends on Thursday, the Bank Of Japan is seen likely to keep monetary policy steady even as it cuts its inflation forecast.
The broader Topix was up 0.1 percent to 1,621.87 and the JPX-Nikkei Index 400 was flat at 14,415.64. (Editing by Shri Navaratnam)