The Nikkei average slipped 0.05 percent on Tuesday as Kao Corp fell on poor earnings while a cell phone price war started by Softbank Corp dragged down other operators such as KDDI Corp.
Yahoo Japan Corp surged by its daily limit of 4,000 yen, or 8.8 percent, to 49,500 yen, after the nation's most popular Web portal posted a 22 percent rise in quarterly net profit on Monday, and Fujitsu Ltd advanced after raising its forecast.
After the market closed, Elpida Memory Inc, the world's fifth-largest DRAM chip maker, said it swung to a quarterly profit that beat market expectations. The Nikkei added nearly 240 points in the previous two sessions, and its approach to the key resistance level of 17,000 made investors cautious, said Katsuhiko Kodama, a senior strategist at Toyo Securities Co Ltd.
The Nikkei edged down 8.35 points to end at 16,780.47. The benchmark closed at a five-month high on Monday. The broader TOPIX index was up 0.19 percent at 1,662.53.
Toru Kitani, a senior investment manager at Sompo Japan Asset Management, said earnings growth momentum appeared to be slowing, just like the global economy.
According to Shinko Research Institute, companies on the Tokyo Stock Exchange's first section posted a rise in recurring profit of 11.3 percent for the business year ended March 31. For the current year these firms project about 2 percent growth.
Shares of mobile phone operators came under pressure as Softbank said on Monday it would offer lower fees than NTT DoCoMo Inc and KDDI and was willing to cut prices further to compete. Second-ranked KDDI plunged 7.1 percent to 728,000 yen, booking its biggest one-day percentage drop since November 2002. Industry leader NTT DoCoMo Inc lost 2.1 percent to 184,000 yen.
Soichiro Monji, chief strategist of equity management at Daiwa SB Investments, said investors were worried that Softbank's drive to increase price competition would eat into profits across Japan's mobile phone industry.
"With harder price competition from Softbank this could be the opposite of a win-win situation," he said. "There's a concern that the consumer might be the only one to profit from this. That's the big worry for investors. So I think telecoms shares might be a tough buy for some time."
Another notable loser was Kao, which fell 5 percent to 3,070 yen after Japan's biggest household products maker booked an 8 percent decline in first-half profit on costs related to acquiring Kanebo Cosmetics and cut its annual forecast. Goldman Sachs downgraded Kao to "neutral" from "buy" and removed the stock from its "Japan Buy List".
A few bright spots included Fujitsu Ltd, which rose 2.4 percent to 1,036 yen after it said on Monday it expects half-year group operating profit to be about 50.6 billion yen ($423.8 million), up 45 percent from its July forecast.
Trade rose to its most active level in more than a week, with 1.82 billion shares changing hands on the Tokyo exchange's first section. Declining shares beat advancers by 844 to 728.