The Nikkei 225 index has closed at 10,474.85, down 280.60 points.
Dealers say the fall reflects investors' concerns over the increasing number of anthrax attacks, which undercut sentiment in the US markets overnight.
The dollar was at 120.91 yen in Tokyo trading, down from 121.25 in late New York trade, and at 0.9034 against the euro, compared with 0.9026 in New York.
Government bond yields were lower, with No 233 yielding 1.32%, down from 1.335% yesterday; and No 234 yielding 1.365%, compared with 1.375% yesterday.
The US government 30-year bond was yielding 5.31%, compared with 5.32% in late New York trade.