The 225-issue Nikkei Stock Average dropped 436.87 points, or 2.01 percent, from Wednesday to close the day at 21,341.74.
The broader Topix index of all First Section issues on the Tokyo Stock Exchange, meanwhile, fell 27.42 points, or 1.72 percent, lower to end at 1,568.87.
The ADP National Employment Report released overnight showing that private employers in the United States added 135,000 jobs in September, less than median analysts' forecasts, coupled with data for August being revised downward, set a sour tone for investors here local brokers said.
They added that in addition to the U.S. Labor Department's non-farm payrolls report due out on Friday, which includes both public and private-sector employment, and recent data showing a slump in manufacturing activity, concerns had resurfaced about the health of the U.S. economy and its growth prospects looking ahead.
Washington saying it will impose hefty tariffs on French wine, Italian cheese and single-malt Scotch whisky to the tune of 7.5 billion U.S. dollars in response to the European Union providing subsidies to large aircraft like the Airbus A380, added to global market nerves and a risk-off mood in Tokyo, market players here said.
"While direct impacts on Japanese shares should be limited, markets are looking at them in terms of whether the world is heading further to protectionism, which will be bad for the global economy," Masayuki Kubota, chief strategist at Rakuten Securities, was quoted as saying.
The yen's appreciation against the U.S. dollar, a trial for Japanese exporters reliant on a weak yen to boost profits when repatriated from overseas, also saw investors hit the sidelines to digest the latest issues, while waiting for further cues from the U.S. service sector index due out later in the day, local market strategists noted.
"The Japanese market is falling sharply, pressured by selloffs in U.S. shares and a higher yen," Toshiyuki Kanayama, senior market analyst at Monex, said.
By the close of play, all industry categories closed in negative territory, with mining, farm and fishery, and transportation equipment-liked issues comprising those that declined the most.
Issues that fell outpaced those that rose by 1,963 to 159, on the First Section, while 29 ended the day unchanged.
On the main section on Thursday, 1,223.81 million shares changed hands, rising from Wednesday's volume of 1,171.64 million shares.
The turnover on the penultimate trading day of the week came to 2,070.4 billion yen (19.32 billion U.S. dollars).