The Nikkei average edged down 0.18 percent on Tuesday as profit-taking hit banks, but buyers flocked to steel makers such as Sumitomo Metal Industries Ltd on earnings optimism, boosting trading volume to a record high.
The Tokyo bourse, the world's second biggest, saw its busiest day of trade on the first section in its 56-year history, with a record 4.56 billion shares changing hands. That was well above the previous record of 3.70 billion shares, set on November 2. The Nikkei retreated as investors moved away from recent gainers such as banks and resource stocks, but analysts said investor appetite remained firm due to high hopes for Japan's economic recovery.
"Now that the market's sentiment is strong, everything looks positive for us," said Masaharu Sakudo, advisor at Tachibana Securities.
The Nikkei fell 24.87 points to 14,036.73. It lost 0.10 percent on Monday after hitting a four-year closing high the previous session.
The broader TOPIX index fell 0.11 percent to 1,497.53. It hit a five-year closing high of 1,499.12 on Monday. Decliners beat advancers 930 to 637.
Tokyo Electric Power Co Inc (TEPCO), Asia's biggest power utility, may come under the spotlight when the market reopens on Wednesday.
TEPCO after the market closed posted a 41 percent fall in first-half profit, hit by increased fuel costs, but forecast annual profits that would beat the market consensus.
Mitsubishi Materials Corp, Japan's biggest non-ferrous metals smelter, posted a 72.4 percent surge in first-half profit after the close. It more than doubled its annual profit forecast to a record thanks to the planned initial public offering of its joint venture SUMCO Corp. Prior to the earnings announcements, shares of TEPCO were up 0.35 percent at 2,875 yen, and those of Mitsubishi Materials closed up 4.8 percent at 436 yen.
Helped by extended gains in JFE Holdings Inc, Japan's second-biggest steel maker, which a day earlier posted a higher-than-expected first-half profit, the steel sector rallied 6.2 percent.
Japan's No 3 steel maker Sumitomo Metal, the most active issue by value, jumped 9.3 percent to 460 yen. Second-ranked JFE was up 7.7 percent at 4,050 yen, adding to a 2.7 percent gain on Monday after it reported a 42 percent jump in first-half profit.
Mizuho Financial Group Inc, Japan's No 2 banking group, fell 0.1 percent to 878,000 yen. Mizuho had risen in the previous nine sessions as investors took in their stride its $4.6 billion share issue, Japan's largest this year, last Wednesday.
As of Monday's close, the banking sector sub-index had risen 12.3 percent since the Bank of Japan lifted its forecasts for consumer prices and economic growth on October 31, raising expectations the central bank will soon scrap its super-easy monetary policy.
Nippon Oil Corp, Japan's largest oil refiner, lost 4.9 percent to 869 yen, adding to a 6.3 percent fall the previous day after a UBS downgrade following the company's first-half earnings stoked concerns about its profit outlook.