The US dollar fell below 109 yen at one point and has dropped more than 2% against the yen since Monday.
Analysts say the change is down to uncertainty over when the US will raise rates, and comments from a Bank of Japan board member who is against deepening negative interest rates.
The Nikkei 225 index closed down 393.18 points, or 2.3%, at 16,562.55.
Tech firms Sony and Panasonic were on the losers list, along with carmakers Toyota, Nissan and Isuzu.
Takata shares fell 5.1%. US carmaker Ford has said it will recall about 1.9 million vehicles in North America, which have been fitted with defective airbag inflators made by the company.
Sentiment for Japanese stocks was also hit after Prime Minister Shinzo Abe announced a delay to an increase in the nation's sales tax. The decision has raised concerns about the direction and growth prospects for the economy.
Mr Abe has said the increase in the tax from 8% to 10% will be delayed until late 2019. It was originally scheduled to be implemented next year.
Elsewhere in Asia, China's Shanghai Composite edged up 0.1% to 2,917.31, while in Hong Kong, the benchmark Hang Seng index was also 0.1% higher at 20,784.80.
South Korea's Kospi index closed up 0.1% at 1,985.11. Revised growth data released earlier on Thursday showed the economy expanded at an annual rate of 2.8% in the first quarter, compared with a previous estimate of 2.7%.
In Australia, the S&P ASX/200 index ended the day down 44.27 points, or 0.8%, at 5,278.90.
Japan's Nikkei index suffered its biggest percentage fall for a month as a stronger yen weighed on exporters.