Japan's Nikkei average inched down 0.2 percent after moving in a tight range on Wednesday, with a broad commodities sell-off prompting investors to take profits after it hit a near eight-month closing high the previous day. But data showing US factory orders made their largest gain in eight months in November supported shares and bolstered hopes for a sustainable US economic recovery ahead of closely watched December payroll figures out on Friday.
The strong factory orders also lent support to the dollar, helping it stay firm around 82 yen and buoying currency-sensitive exporters. The fall in commodities to their lowest level in seven weeks weighed on shares of resource companies such as non-ferrous metals smelter Sumitomo Metal Mining Co, which lost 1.8 percent, although market analysts said it was likely to have only a limited impact.
"The Nikkei slid only a notch today and it's not a very important negative move as the general positive trend remains intact, with high expectations for the US economy to pick up steam this year," said Fumiyuki Takahashi, an equity strategist for Barclays Capital Japan.
"Despite consolidation around new levels today, the increased global appetite for risky assets among market players is what's really driving the market. Investors keep selling bonds and tap into stocks, lifting them higher," Takahashi said. With rising expectations for the world's largest economy to recover, market players are aggressively buying lagging Tokyo equities with high exposure to the US market and low price-to-book ratios, such as automakers, he said.
The Nikkei moved in and out of positive territory before closing the day down 0.2 percent or 17.33 points at 10,380.77. Traders said the next technical target for the Nikkei stands at a 61.8 percent Fibonacci retracement of its April to August fall at 10,403, a level briefly pierced on Tuesday.
The broader Topix index was almost unchanged, shedding 0.01 percent to 911.69. In the second session of the year trading volume picked up, with 1.73 billion shares changing hands on the Tokyo Stock Exchange's first section compared with 1.6 billion on Tuesday. It was well above last week's average of 1.28 billion.
Long-term resistance, which could be tested if Friday's US jobs data for December comes in better than expected, is looming at 10,638, an intraday level hit last May 13, when the fiscal crisis in Greece rocked markets across the world. "The Nikkei is on an upward trend, and once it breaches the December futures settlement price of 10,420 it may rise that high," said Hiroyuki Fukunaga, chief executive of research firm Investrust.
Decliners on the Nikkei were led by Japan's largest Internet firm, Yahoo Japan, which lost 4.7 percent in heavy trade after Goldman Sachs resumed coverage with a "sell" rating. "Yahoo Japan is dominant in the PC search and portal businesses. However, it has much less of a presence in mobile/smartphone sites than in PC sites at a time when increased smartphone use threatens to reduce PC usage," Goldman said in a note to clients.
Electronics maker Toshiba Corp gained 2.5 percent after the Nikkei business daily reported that its unit Westinghouse Electric Co will work with China's State Nuclear Power Technology Corp to develop a large nuclear reactor. It was the fifth-biggest gainer on the Nikkei 225 and the second most actively traded share by volume. Advancing issues outpaced declining ones by 950 to 557.