Japanese shares fell on Thursday after Bank of Japan board member Asahi Noguchi said the central bank should raise rates cautiously to ensure inflation stabilizes near its 2% target, which is supported by steady wage growth.

The Nikkei 225 fell 0.84%, or 313.11 points, to end at 36,985.87.

Noguchi said the BOJ should take a measured, step-by-step approach, allowing time to assess the impact of each rate hike.

Meanwhile, yields on super-long JGBs hit record highs this week, as calls for major fiscal spending risk complicating policy normalization.

On the economic front, Japan's private sector activity slowed in May, with the au Jibun Bank Flash Composite PMI falling to 49.8 from 51.2, indicating a slight contraction.

Manufacturing remained weak as the PMI rose marginally to 49.0 but stayed below the 50 threshold. Output declined faster, and although new orders and exports fell more slowly and hiring improved, overall sentiment stayed muted.

The services index slipped to 50.8 from 52.4, its slowest growth in nearly a year, amid weaker demand and the softest rise in staffing in 17 months. Business confidence fell to its lowest since January 2021.

Separately, core machinery orders rose 13% in March from February but fell 9.4% overall, with total orders projected to drop 1.6% in April-June. Private-sector orders are expected to decline 2.1% in the quarter.

On the corporate front, Odakyu Electric Railway (TYO:9007) saw April railway passengers rise 1.4% and revenue edge up 0.7% to 3.69 billion yen.

Department store sales slipped 0.2%, while hotel occupancy improved, led by a 6.1-point rise in Shinjuku. All hotels posted gains except Hakone Yutowa.

Zennor Asset Management warned a reported 6 trillion yen buyout of Toyota Industries (TYO:6201) by Toyota Motor (TYO:7203) may favor the founding family and undervalue assets, Bloomberg reported. A decision is expected by June.