But financial stocks such as banks and insurers, which benefit from higher yielding products such as foreign bonds, gained ground after U.S. Treasury yields rose on data showing U.S. retail sales increased more than expected in June.

In afternoon trade, office supplies vendor Askul Corp  jumped more than 12% after the company confirmed a Nikkei report that it had requested talks with Yahoo Japan  to dissolve their alliance.

The Nikkei share average fell 0.3% to 21,469.18, while the broader Topix dropped 0.1% to 1,567.41. Declining issues outnumbered advancing ones 1,399 to 672.

On Wednesday, U.S. stocks were dented after Trump said there was a long way to go with China on trade and threatened to put tariffs on another $325 billion of Chinese goods.

"There is uncertainty over trade talks. The market has become sensitive again on whether there will be progress in the talks between the United States and China," said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management.

"We will stay cautious against trade-related headlines for now."

Tech shares were sold, with TDK Corp declining 2.6% and Taiyo Yuden sliding 2.4%.

Meanwhile, financial stocks outperformed, with Sumitomo Mitsui Financial Group rising 0.3%, Dai-ichi Life Holdings adding 0.2% and T&D Holdings soaring 0.7%.

Futures selling dragged down index-heavy stocks such as SoftBank Group, Fast Retailing and Terumo Corp , which fell 2.4%, 0.6% and 2.9%, respectively.

Elsewhere, Aeon Fantasy, which operates entertainment facilities in shopping centres, jumped 11.6% after the company said its June same-store-sales soared 13.2% on the year thanks to the popularity of medal games, a type of game played for tokens commonly found in shopping arcades in Japan.