The Nikkei average inched up 0.12 percent on Monday as pharmaceutical and other defensive stocks drew buyers, offsetting a fall in Sony Corp and other exporters on concerns about a strong yen denting their profits.
A series of rating changes by brokerage firms following earnings announcements last week divided winners and losers, with Pioneer Corp and Toshiba Corp gaining and Japan Tobacco Inc falling.
Analysts said many in the market see the yen rising further against the dollar, putting exporters under pressure. The dollar tumbled to a seven-month low against the yen on Monday.
"The effect of the dollar/yen rate on companies is big. Investors tend to shun exporters at times like this," said Shinji Igarashi, equity manager in the sales department at Chuo Securities.
"Instead, investors are flocking to defensive stocks such as drug and food stocks."
The Nikkei rose 19.48 points to 16,925.71. The TOPIX index rose 0.04 percent to 1,717.17.
Trade was thin ahead of Japan's Golden Week holidays. The Tokyo bourse saw its slowest day of trading since July, with just 1.32 billion shares changing hands on the exchange's first section.
Decliners beat advancers 856 to 731.
The dollar fell as low as 113.05 yen on electronic trading platform EBS and by 0630 GMT was changing hands around 113.10 yen. A stronger yen is a minus for exporters as it eats into profits when earnings from abroad are brought home.
Toru Kitani, senior investment manager at Sompo Japan Asset Management, said many companies are assuming a dollar/yen exchange rate of 110 yen for this business year and the yen's appreciation beyond that level could weigh on the market.
"Japanese corporations have produced conservative outlooks and the way investors took these numbers is that the firms have left room for upward revisions, benefiting from the cheap yen ... but if the dollar/yen falls below 110 yen, investors will expect negative surprises," he said.
Sony fell 4.6 percent to 5,460 yen, extending its 5.1 percent slide on Friday, hit by both the currency and its profit outlook. Canon Inc, which generates three-quarters of its sales outside Japan, fell 0.7 percent to 8,650 yen. Amid growing uncertainty about the yen's movements, investors bought defensive stocks such as drug, food and utility firms.
Astellas Pharma Inc rose 2.3 percent to 4,860 yen and Kikkoman Corp, the world's largest soy sauce brewer, jumped 6.9 percent to 1,437 yen. Utility stocks advanced, with electricity and gas IEPNG. the best performing sector. Tokyo Electric Power Co Ltd was up 3.3 percent at 3,020 yen and Tokyo Gas Co Ltd added 2.5 percent to 565 yen.
Elsewhere, Pioneer rose 2.7 percent to 2,070 yen, adding to a 2.5 percent gain in the previous session, after the electronics maker said it would return to profit in the current year. The news helped prompt Daiwa Institute of Research to lift its rating on the firm, citing strong demand for car audio and navigation systems.
Toshiba gained 3.5 percent to 750 yen after it posted a 70 percent rise in annual net profit on Friday and Goldman Sachs raised its rating to "outperform" from "in-line".
Japan Tobacco, the world's third-biggest tobacco company, fell 2.8 percent to 445,000 yen after Merrill Lynch downgraded its rating on the stock to "neutral" from "buy" following a worse-than-expected earnings outlook.
After the market closed, top Japanese tyre maker Bridgestone Corp lowered its half-year net profit forecast by 9 percent to account for the possible closure of a US plant in Oklahoma City, while raising its operating profit projection citing a weaker-than-expected yen.
Bridgestone ended down 0.7 percent at 2,755 yen.
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