At closing bell, the 225-issue Nikkei Stock Average index was down by 104.51 points, or 0.37%, to 28,051.70. The broader Topix index of all First Section issues on the Tokyo Stock Exchange declined by 3.52 points, or 0.18%, to 1,973.90.
Stocks met selling after the U.S. central bank raised its key short-term rate by 0.50 percentage points, marking its seventh hike this year. The Fed also said it expected rates would be higher over the coming few years than it had previously anticipated.
The latest increase brings the Fed's federal funds rate to a range of 4.25% to 4.5%, its highest level in 15 years. Fed policymakers forecast that the cental bank's rate will reach a range of 5% to 5.25% by the end of 2023. That suggests the Fed is prepared to raise rates by an additional 0.75 percentage points next year. The Fed also signaled it expects its rate will come down by the end of 2024 to 4.1%, and drop to 3.1% at the end of 2025.
Investors' eyes will now be trained on policy decisions from the European Central Bank and Bank of England later in the global day, as officials there also stood ready to hike rates again against the rising risks of fomenting recessions.
The biggest gainers of the session on the Nikkei 225 were Kawasaki Heavy Industries, which rose 5%. Mitsubishi Heavy Industries added 4.1% and Hitachi Zosen Corp was up 3.1%. Biggest losers included Shiseido Co, which lost 2.3%. Chugai Pharmaceutical Co declined 2.06% and Nisshin Seifun Group Inc. shed 2%.
High-tech shares were lower, tracking an overnight fall of the US peers. Optical equipment maker Olympus fell 1.2% to 2,643.0 yen, while Sony Group slid 0.9% to 11,045 yen.
Defense-related stocks drew buying as Japan's ruling Liberal Democratic Party works to conclude discussions on measures to secure financial resources for the government's plan to increase defense spending. Mitsubishi Heavy Industries surged 4.1% to 5,676 yen and Kawasaki Heavy Industries gained 5% to 3,245 yen.
ECONOMIC NEWS: Japan posted a merchandise trade deficit of 2,027.4 billion yen in November, following the downwardly revised 2,166.2 billion yen deficit in October, according to the Ministry of Finance data released on Thursday. Exports jumped 20% on year to 8.837 trillion yen, slowing from 25.3% in the previous month. Imports spiked an annual 30.3% to 10.864 trillion yen following the 53.5% surge a month earlier.
CURRENCY NEWS: The Japanese yen stood at 135.81 against US dollar in Asian trade, depreciated by 0.25% from yesterday's close of 135.47. JPY/USD was trading in the range between 135.24-135.90.
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