TOKYO, JAPAN - Japanese shares fell 1.39 percent on Thursday as exporters were hit by a stronger yen and investors warned that the market needed positive news to boost it higher.

The benchmark Nikkei-225 index slipped 137.13 points to 9,703.72. The broader Topix index of all first section shares dropped 1.28 percent or 11.82 points to 911.21.

"The fundamental mood is not that bad as investors know that the economy has bottomed out," Nikko Cordial Securities strategist Tsuyoshi Kawata told Dow Jones Newswires.

"But we need more positive economic indicators for the stock market to rise further," he added.

Oil and steel shares dipped as investors took profit, following their recent spike amid rising raw material prices, while doubts over the timing of a world economic recovery continued to weigh on sentiment.

Nippon Steel dropped 4.2 percent to 365 yen while oil developer Inpex fell 3.1 percent to 742,000 yen.

Shippers were weak despite a rise in the Baltic Dry Index, which tracks the costs of shipping raw materials, after US package delivery giant FedEx reported an 876-million-dollar quarterly loss and warned of lower earnings in the next quarter.

Mitsui OSK Lines retreated four percent to 641 yen.

The yen's rise to below 96 yen to the dollar sapped shares of exporters as a higher currency rate eats into companies' profitability when converted back into their local currency.

A JPMorgan analyst report which warned that office equipment maker Ricoh's second quarter earnings report may be damaged by conditions in the multi-function printer and copier maker. Ricoh fell 5 percent to 1,206 yen.

Defensive stocks, which are less sensitive to swings in demand, such as those of convenience stores, climbed higher. FamilyMart climbed 5.9 percent to 3,150 yen and the chain Lawson strengthened 2.2 percent to 4,200 yen.

Earnings of Japan's ubiquitous convenience stores have been relatively insulated from the recession, and share prices are still far below their highs posted in January, SMBC Friend Research Center analyst Shun Tanaka said.