Tokyo shares trimmed early gains to end lower Thursday, as chip-linked shares lost momentum and investors were spooked by a stronger yen.

The benchmark Nikkei 225 index dropped 1.23 percent, or 492.07 points, to 39,598.71, while the broader Topix index slid 0.44 percent, or 12.13 points, to 2,718.54.

The dollar fetched 148.60 yen, compared with 149.44 yen in New York.

The Tokyo market started trading higher following global rallies fuelled by hopes for long-awaited US Fed rate cuts.

Global shares staged a comeback as Federal Reserve chief Jerome Powell said Wednesday that it would be "appropriate to begin dialling back policy restraint at some point this year", barring any unexpected events.

But the market then nosedived into negative territory after "semiconductor-linked shares lost steam and export-driven stocks struggled," IwaiCosmo Securities said.

Also Thursday, Junko Nakagawa, a member of the policy board at the Bank of Japan, reportedly said "steadfast progress is being made" on the bank's goal of achieving sustained two-percent inflation. 

Her remarks helped strengthen the yen and consequently saw the market narrow gains.

Once the Nikkei dipped below the psychologically important 40,000 mark, "stocks fell rapidly," IwaiCosmo added.

Among major shares, chip-testing equipment maker Advantest plummeted 4.47 percent to 6,974 yen and Tokyo Electron plunged 3.88 percent to 38,060 yen.

Toyota lost 2.89 percent to 3,660 yen and Sony Group slid 0.15 percent to 12,935 yen.