TOKYO: Japanese shares closed lower on Thursday as investors sold off technology and drug stocks following Wall Street's weak finish after the US Federal Reserve signalled rate hikes earlier than expected, while the financial sector shined as US Treasury yields gained.

The Nikkei share average ended 0.93% lower at 29,018.33, while the broader Topix fell 0.62% to 1,963.57.

The three main Wall Street indexes all fell overnight after the Fed revealed it expected its first post-pandemic interest rate hike to come in 2023, a year sooner, citing an improved health situation amid the vaccine rollout.

"Investors seems to be overreacting to the Fed's announcement, and the declines in US stocks," said Shoichi Arisawa, general manager of the investment research department at IwaiCosmo Securities.

"But it is understandable, because the US market may fall again tonight as the market might not have fully digested the Fed's announcement, which was made right before the close."

Tech start-up investor SoftBank Group, down 1.4%, was the biggest drag on the Nikkei, followed by medical platform service firm M3, which fell 3.61%. Sony Group pressured the Topix by losing 2.34%.

Insurers and banks advanced, with T&D Holdings gaining 3.11%, making it the biggest gainer on the Nikkei. Dai-ichi Life Holdings rose 2.54%. Mitsubishi UFJ Financial Group added 1.18% and Sumitomo Mitsui Financial Group gained 0.84%.

Toshiba, which is facing corporate governance crisis, added 1.26% after the Wall Street Journal reported its chairman said he may step down after revamping its board and appointing a new CEO.