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The Nikkei ended 0.3 percent higher at 11,968.08 points, extending its winning streak to six straight sessions, after climbing as high as 12,069.60 earlier in the day.
The benchmark succumbed to profit taking after topping the psychologically important 12,000-level, with shares in banks, and warehouse and wharf operators going into reverse.
"It is absolutely normal for investors to lock in gains amid a sense of achievement after hitting 12,000," said Fumiyuki Nakanishi, general manager of investment and research at SMBC Friend Securities.
"Our traders said there were many sell orders from our clients, who are medium to small institutional investors, but no major buy orders today in the spot market," he said.
The Bank of Japan kept monetary policy unchanged, as expected, earlier on Thursday, holding fire for new leaders who are expected adopt bolder measures to end nearly 20 years of mild deflation from next month.
The two-day meeting was the last for Governor Masaaki Shirakawa and his two deputies before they leave on March 19.
Exporters led early gains as the dollar hit a one-week high against the yen after a report showed U.S. private-sector employers added a larger-than-expected 198,000 jobs in February.
Mazda Motor Corp climbed 4.6 percent, Suzuki Motor rose 1.6 percent and auto parts maker Denso Corp gained 1 percent.
"Exporters have gained sharply recently and they have become expensive," said Tetsuro Ii, the chief executive of Commons Asset Management, noting that foreign investors were main buyers of exporter shares.
But he added that higher valuations would likely be justified as earnings recover on the back of a weaker yen.
The rubber products sub-index was the best-performing sector on the main board on Thursday, up 3.5 percent, after Citigroup upgraded its rating of the three major tyre makers to 'buy'.
Bridgestone Corp surged 4.2 percent, while Sumitomo Rubber Industries Ltd <5110.T> and Yokohama Rubber Co Ltd advanced 2.2 percent and 1.4 percent, respectively.
Trading volume on the main board was moderate, with 3.19 billion shares changing hands, compared with last week's daily average of 3.32 billion.
The broader Topix edged up 0.1 percent to 1,004.35, its highest since October 2008.
WEAK YEN POWERS EXPORTERS
"Our investment view on Japanese equities remains neutral and we still prefer the exporter companies mainly because we believe the weaker yen will bring a positive impact to their earnings for the quarter ending March," Toru Ibayashi, head of wealth management research of UBS Securities Japan, wrote in a note.
The Nikkei has gained 15 percent this year, outperforming its global peers as the yen had declined sharply on calls by new Prime Minister Shinzo Abe for aggressive easing.
By comparison, the U.S. S&P 500 has gained 8.1 percent while the pan-European FTSEurofirst 300 index has advanced 4.6 percent over the same period.
While long-term sentiment toward Japanese stocks remains positive, analysts also said that a near-term correction was possible.
"As soon as the Nikkei trades 5 percent above its 25-day moving average, we see selling immediately," said Kenichi Hirano, strategist at Tachibana Securities.
The 25-day moving average is at about 11,415, 4.6 percent below Thursday's closing level.
Other notable movers on Thursday included Boeing
Sharp Corp, however, sank 7.9 percent, giving up some of the gains it made a day earlier after sources said South Korea's Samsung Electronics Co Ltd is set to invest about $110 million in the struggling firm. The companies confirmed the investment after Wednesday's market close.
