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* Canon weighs on precision equipment sector
* Dollar-yen top heavy at 112 limiting Nikkei's upside - traders
TOKYO, April 18 (Reuters) - Japan's Nikkei retreated from a 4-1/2-month high on Thursday as defensive stocks fell and Canon tumbled on a report that it will cut its earnings forecast.
The Nikkei share average dropped 0.84 percent to 22,090.12, after touching the highest level since early December on the previous day.
Defensive drug shares dropped, with Takeda Pharmaceutical sliding 3.5 percent and Astellas Pharma falling 3.2 percent. Otsuka Holdings declined 3.5 percent to three-year lows.
The Tokyo Stock Exchange's pharma index shed 3.3 percent to its lowest levels in more than three months.
Canon Inc tumbled 4.0 percent after the Nikkei business daily reported it is expected to cut its earnings guidance for 2019 and expects operating profit to drop 20 percent to slightly above 270 billion yen, compared with the previously expected 325 billion yen.
A rival camera maker Olympus shed 2.5 percent.
With the dollar dropping below 112 yen after briefly touching a four-month peak of 112.17 on Wednesday, investors are cautious before chasing the market higher, traders said.
"Investors are taking a wait-and-see approach and some are taking profits as it seems that the dollar-yen is top-heavy at around 112," said Yutaka Miura, a senior technical analyst at Mizuho Securities, adding that many are awaiting Japanese corporate earnings for more cues.
Companies whose business years ended March will start releasing their full-year results later in the month.
Automakers bucked the weakness, extending gains from the day before on continued optimism over U.S.-Japan trade talks.
Economy Minister Toshimitsu Motegi said the two nations have not agreed on auto issues and declined to comment on details.
Japanese officials have said Tokyo would not accept auto export restrictions if the U.S. makes such demands.
Toyota Motor Corp rose 0.3 percent and Honda Motor Co jumped 1.4 percent.
Some semi-conductor shares extended their recent strength, with Keyence Corp gaining 0.8 percent to a record high.
The broader Topix dropped 0.96 percent to 1,614.97.
Small-cap shares were hit badly, with Topix small index falling 1.8 percent, compared to the Topix core 30 , made up of the biggest 30 firms, declining 0.7 percent. (Additional reporting by Hideyuki Sano Editing by Kim Coghill & Shri Navaratnam)