The benchmark index on the Tokyo Stock Exchange hit an all-time high on Thursday, before closing sharply lower after the yen strengthened.

The Nikkei 225 ended the day at 39,598, down 492 points or 1.2 percent from Wednesday. It surged to a record high soon after the start of trading, led by semiconductor shares.

The index began to fall when investors unloaded automobile and other export-related stocks on the yen's appreciation against the dollar and the euro.

That followed a remark by a Bank of Japan board member that inflation is on track to meet the central bank's 2 percent target.

The yen strengthened as currency investors took the view that a change in BOJ policy, including ending negative interest rates, could come sooner than previously expected.

The Nikkei Average topped the 40,000 mark for the first time ever on Monday, but has closed lower for three straight sessions since then.