Japan's Nikkei share average fell 2% on Thursday after a three-session rally, with technology stocks leading the retreat, while investors waited for a Bank of Japan policy decision on Friday for further direction.

The Nikkei closed 2.16% lower at 37,628.48. It had risen 2.4% on Wednesday in its biggest jump in more than a month and reclaimed the 38,000 level.

The broader Topix fell 1.74% to 2,663.53.

"The market has been volatile lately because there are many uncertainties that have changed investors' premises," said Kentaro Hayashi, a senior strategist at Daiwa Securities.

"Inflation in the U.S. is more persistent than expected, which has pushed U.S. yields higher, and tensions in the Middle East have lifted oil prices."

A Nikkei volatility index, which on April 19 hit its highest since Oct. 3 at 27.82, was last at 21.50.

Chip-related shares dragged the Nikkei lower, with Tokyo Electron and Advantest falling 3.48% and 1.71%, respectively. Shin-Etsu Chemical lost 2.68%.

Technology investor SoftBank Group fell 1.96%.

Toyota Motor fell 3.34% despite the yen hitting a 34-year low.

Overnight, the yen fell below 155 per dollar to hit its weakest since June 1990, a level seen as authorities' line in the sand that heightens the chance of currency intervention.

The market is focusing on whether Bank of Japan Governor Kazuo Ueda will make any hawkish comments on prospects of a near-term interest rate hike at the end of its two-day policy meeting on Friday.

Fanuc lost 3.43% after the robot maker's annual profit forecast came in below market expectations.

Canon tanked 8.42% after the camera maker's annual operating profit missed analysts' expectations.

Meanwhile, Daiichi Sankyo jumped as much as 5.2% after the drug maker said it would spend up to 200 billion yen ($1.29 billion) to buy back its own shares. Its shares ended up 0.78%.

Of the 225 Nikkei components, 18 stocks rose, while 207 fell.

($1 = 155.6300 yen) (Reporting by Junko Fujita; Editing by Subhranshu Sahu)