The 225-issue Nikkei Stock Average finished down 177.61 points, or 0.63 percent, from Thursday at 27,940.42, the lowest point since May 17.
The broader Topix index of all First Section issues on the Tokyo Stock Exchange ended 7.94 points, or 0.41 percent lower at 1,912.38.
In the First Section, declining issues outnumbered increasing ones 1,175 to 907, while 110 finished the day unchanged.
Declining issues were led by machinery, rubber product, and marine transportation issues.
Trading volume on the main section rose to 1,425.64 million shares from Thursday's 1,144.05 million shares.
Stocks went down sharply in the morning, with the Nikkei declining more than 2 percent, but bounced back in the afternoon due to a slightly weaker yen and investors scooping up recently sold off shares, brokers said.
Prime Minister Yoshihide Suga's administration decided on Thursday to place Tokyo under its fourth COVID-19 state of emergency, effective from Monday to Aug. 22, covering the duration of the Tokyo Olympics.
Koichi Fujishiro, a senior economist at the Dai-ichi Life Research Institute, said the declaration of the fourth state of emergency in Tokyo shocked the market, making investors question the pace of economic recovery.
The brokers mentioned that the decision that the Summer Games will be held without spectators at venues around Tokyo also dragged down investor sentiment.
Marine transportation issues went down on Friday due to rising concerns about a global economic slowdown. Among that, Kawasaki Kisen decreased 2.1 percent, Nippon Yusen dropped 0.9 percent, and Mitsui O.S.K. Lines lost 0.6 percent.
Bucking the downward trend, Eisai increased 2.1 percent following its pharmaceutical company and U.S. biotech giant Biogen Inc. got approval by the U.S. Food and Drug Administration to narrow the use of their new Alzheimer's disease drug, making it easier for doctors to prescribe.