The Nikkei fell 255 points or 0.7% to close at 37,499 after a flat performance in the prior session, while the broader Topix edged down almost 0.1%, marking its second consecutive subdued day.

A sharp drop in U.S. futures rattled sentiment after Moody's downgrade of the U.S. credit outlook raised fears of a potential flight from U.S. assets.

Meanwhile, the White House kept up trade pressure, with Treasury Secretary Bessent warning that partners would face maximum tariffs if they failed to negotiate "in good faith."

Investors remained cautious, closely watching U.S.-Japan trade talks as Tokyo aims to finalize a deal in June. Markets also digested Chinese data showing slower industrial output and retail sales in April. Among single stocks, Fast Retailing fell 1.1%, the biggest drag on the Nikkei.

Chipmakers Advantest and Tokyo Electron dropped 1.4% and 1.2%, respectively. In contrast, drugmaker Daiichi Sankyo surged 6.6%, topping gainers and providing the index's biggest lift.

Source: Trading Economics