Tokyo stocks are expected to climb slightly higher this week, with traders saying they were positioned for a potential tech slowdown and expected US and China interest rate hikes.
But fears about oil prices, the pace of interest rate rises in the United States and credit tightening in China were expected to limit any gains, analysts said.
"I don't really expect any big moves because it's the last month of the quarter. But it could head a bit higher and retest some of the highs we've seen recently," said Hiroshi Nishida, general manager at Mitsubishi Trust Asset Management.
With few corporate earnings announcements or major economic data releases on the calendar, trading is expected to be thin. Investors are likely to look further ahead to next week when the Bank of Japan releases its quarterly corporate sentiment survey and the US Federal Reserve holds its policy meeting.
The technology-sensitive Nikkei benchmark was seen trading between 11,000 and 11,700.
On Friday, the Nikkei fell 1.95 percent or 225.82 points to 11,382.08, losing ground for a second day after hitting a seven-week closing high of 11,641.72 on Wednesday. It was down 1.26 percent on the week.
Traders said selling by foreigners, particularly in the tech sector, which had gained pace last week as investors sought to take profits ahead of the half-year book closing, was likely to ease. Slight gains on Wall Street on Friday were also expected to help sentiment in Asia.
The Dow Jones industrial average ended up 0.37 percent, at 10,416.41. The Nasdaq Composite Index edged up 0.15 percent, to 1,986.73.
Worries about China - whose rapid development has been an important driver of Japan's economic recovery - increased late last week, hurting shares in Hong Kong, China and Tokyo.
Views on the tech sector remained divided, with some falling roughly in line with influential tech analyst, Fumiaki Sato of Deutsche Securities, who said last week the computer chip and LCD industries were set to slump. Sato said the Nikkei could fall to between 9,000 and 9,500 in January or February.
But others said some chip-related companies, particularly manufacturers of 300 mm wafers, such as Shin-Etsu Chemical Co Ltd, the world's largest silicon wafer maker, were cheap. Other makers of 300 mm wafers, which are the material from which chips are cut, include Komatsu Electronic Metals and Sumitomo Mitsubishi Silicon Corp, a joint venture between Sumitomo Metal Industries and Mitsubishi Materials Corp.