The Nikkei shed 1.2 percent to 10,039.33, after surging 2.4 percent on the previous day to 10,160.40, logging its biggest one-day percentage rise since September 2011.

Selling came after the Bank of Japan (BOJ) eased monetary policy on Thursday afternoon by expanding its asset-buying and lending programme.

It was a widely expected move in response to intensifying pressure from incoming Prime Minister Shinzo Abe for the BOJ to deliver bolder steps to beat deflation.

 The central bank topped up its asset-buying and lending programme by 10 trillion yen to 101 trillion yen by a unanimous vote, expanding stimulus for the third time in four months.

"Some investors were disappointed with the BOJ's asset-buying amount. It expanded the programme by 10 trillion yen for both short-term and longer-term bonds, but investors were expecting as much as 10 trillion yen on just buying longer-term bonds," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

 The BOJ's shares jumped 10.7 percent on Thursday, extending a 33 percent rally over the past three sessions.

The bank also signalled a review of its current 1 percent inflation target at its next policy-setting meeting in January, when Abe will have a new cabinet in place ready to negotiate with the central bank.

"Abe has been demanding an inflation target of 2 percent, but the bank postponed the decision about this without elaborating," Fujito said.

Automakers were among the worst sectoral performers amid a 5.5 percent slump in Mitsubishi Motors Corp, after the company said it would recall about 1.2 million minicar vehicles in Japan due to faulty engine oil seals.

 Honda Motor Co lost 1.8 percent. Nissan Motor Co sank 7.4 percent, also hurt by a rating cut by Nomura, which said there was a risk of deterioration in short-term earnings.

Center>Copyright Reuters, 2012