Nikkei share average tumbled 2.03% to close at 28,508.55, while the broader Topix fell 1.98% to 1,888.18 – both indexes dropped the most in about a month.
“Global investors find little reason to buy Japanese stocks because Japan is lagging behind other countries in terms of containing the virus,” said Hideyuki Ishiguro, senior strategist, Daiwa Securities.
“Worsening the sentiment is that Japan is now planning to declare a state of emergency again.”
The government is considering a state of emergency for Tokyo and Osaka as new COVID-19 case numbers surge, broadcaster NHK reported on Wednesday, a move that would enable prefectural authorities to impose curbs to try to stop infections spreading.
New declarations would mark the third full state of emergency in Japan since the epidemic began. The total economic loss from a renewed emergency in the three regions would be 1.156 trillion yen ($10.71 billion), the Nomura Research Institute said in a report.
Steel makers and other material sectors lost the most in the Nikkei index.
Nippon Steel tumbled 5.4%, while JFE Holdings and Kobe Steel lost 5.39% and 4.87%, respectively.
Toshiba fell 3.3% after it dismissed a $20 billion buyout offer from CVC Capital Partners.
Shares of Rakuten Group lost 5.5%, becoming the biggest loser in the Nikkei, following a report that the United States and Japan will jointly monitor the e-commerce firm after a unit of Tencent became a major shareholder.
SoftBank Group gained 1.03% amid news that its $100 billion Vision Fund is widely seen reporting record earnings next month.
