Japanese stocks closed lower on Thursday as the yen's advance against the dollar hit exporters, offsetting gains in insurers and miners after the Bank of Japan's "tankan" report showed companies gaining in confidence.
Analysts said the strong results in the quarterly business survey released before the start had already been factored in and investors were now worried about the impact of the yen's strength on corporate earnings in fiscal 2004/05, which started on Thursday.
"It seems like the yen's sharp rise is sending a chill through the market and foreigners, especially European funds, have started taking to the sidelines," said Yasuo Yabe, an adviser at Meiwa Securities.
Fuelling investors' fears about the yen, video game maker Nintendo Co Ltd said in the afternoon that it would revise its earnings forecast for last business year and that pushed its share price down 3.71 percent to 10,120 yen.
After the close, Nintendo said it had cut its net profit forecast to 33 billion yen ($317 million) for the year to March 31, down from a previously projected 54 billion yen, as the strong yen inflated foreign exchange losses.
The Nikkei average dipped 0.27 percent to close at 11,683.42. It had surged 47 percent in the fiscal year to Wednesday, the biggest annual rise in more than three decades.
The broader TOPIX index lost 0.36 percent to end Thursday's session at 1,175.01.
Honda Motor Co Ltd, which generates more than three quarters of its sales overseas, lost 2.92 percent to 4,660 yen. Canon Inc, Japan's biggest maker of office machines, fell 2.04 percent to 5,280 yen.
Trading picked up pace, with 1.784 billion shares changing hands, the highest total since Thursday last week and up from 1.258 billion on Wednesday.
Decliners outnumbered gainers 878 to 588.
Citing the yen's advance and uncertainty over the global economic recovery, Mitsushige Akino, a chief fund manager at Ichiyosihi Investment Management, said he would stay away from exporters and technology stocks.
Millea Holdings Inc, Japan's largest non-life insurer, rose 2.47 percent to 1.66 million yen, while Sompo Japan Insurance Inc advanced 1.25 percent to 1,130 yen.
Sumitomo Coal Mining Co Ltd, which distributes coal imported from Australia, climbed 3.6 percent to 115 yen.
Oil-related stocks climbed on expectations of higher oil prices after Opec (Organisation of the Petroleum Exporting Countries) agreed to cut oil production. Teikoku Oil Co Ltd, for example, jumped 8.99 percent to 618 yen, helping the sector's sub-index IPETE rise 5.05 percent.
Another focus was the Osaka Securities Exchange, whose shares made a stunning market debut with investors keen to buy at more than double the initial public offering price.
OSE's shares were untraded on its debut due to a glut of buy orders, which took the bid-only price to 386,000 yen by the close, up 127 percent from its IPO price of 170,000 yen.