Drugs firms plunged in Japanese trade Thursday, leading a sell-off on Tokyo's Nikkei index, as the sector was hit by accusations of fraud against a Canadian pharmaceutical giant.

New York-listed Valeant Pharmaceuticals International crashed more than 19 percent Wednesday after a report from Citron Research accused the company of inflating sales, accusations it dismissed as "erroneous".

"Drugmakers are being sold-off as investors try to limit their exposure in the sector," Naoki Fujiwara, chief fund manager at Shinkin Asset Management, told Bloomberg News.

Kaken Pharma, which has business ties with Valeant, dived 9.74 percent to 7,690 yen, while Astellas Pharma fell 2.18 percent to 1,612 yen, and industry giant Takeda Pharmaceutical was down 1.63 percent to 5,601 yen.

The losses dragged the benchmark Nikkei 225 index at the Tokyo Stock Exchange lower, with profit-taking also eating into shares following a 1.91 percent advance Wednesday.

The bourse ended down 0.64 percent, or 118.41 points, at 18,435.87, while the broader Topix index of all first-section shares fell 0.56 percent, or 8.59 points, to 1,518.22.

Eyes are now on a Bank of Japan meeting next week after tepid trade data on Wednesday fuelled speculation policymakers will further loosen monetary policy to counter a downturn in the economy.

"We're heading into earnings season and with the (Bank of Japan) policy meeting next week, it's hard to choose a direction to invest in," said Fujiwara.

But "speculation for central bank easing is supporting the market".

In other trading, Sony fell 0.41 percent to 3,400 yen, Toyota slipped 0.52 percent to 7,428 yen and banking giant Mitsubishi UFJ was down 0.16 percent to 768.3 yen.