TOKYO: Tokyo stocks were flat Tuesday morning as a pickup in the yen took the wind out of exporters, but the Bank of Japan provided an upbeat view of the world's number-three economy soon after the end of the session.
The benchmark Nikkei 225 index edged down 5.23 points to 19,386.37 by the break, while the broader Topix index of all first-section shares fell 0.21 percent, or 3.22 points, to 1,545.84.
"Markets are a bit overbought, we've seen huge gains since the election of Donald Trump," said Shane Oliver, AMP Capital Investors head of investment strategy.
"At some point we will see a bit of a pullback," Oliver told Bloomberg News.
"The real issues will be tension between the US and China, and of course eurozone breakup risks, which will come into focus with various elections across Europe over the next 12 months," he said.
In morning trading, the yen's strength offset modest gains on Wall Street, while investors cashed in on the recent rally.
After trade ended for the morning, the central bank said it would maintain its loose monetary policy, as expected, but said the economy was "likely to turn to a moderate expansion".
It also noted exports and industrial production are gathering steam, after saying they were "sluggish" in a November statement.
"Exports have picked up," the bank said, adding that corporate and private spending were also on the upswing.
"Reflecting these moderate increases in demand both at home and abroad, and the progress in inventory adjustments, industrial production has picked up."
The dollar was at 117.20 yen in late morning trade, up from 117.18 in New York but well down from levels above 118 yen seen at the end of last week.
A stronger yen hurts the profitability of Japan's major exporters, hitting demand for their shares.
Toyota fell 0.54 percent to 7,105 yen while Nissan lost 0.34 percent to 1,165 yen and Sony slipped 1.36 percent at 3,335 yen.
Financial shares were also off, with banking giant Mitsubishi UFJ falling 1.76 percent to 746.2 yen.
SoftBank ticked up 0.61 percent to 7,870 yen after it announced $1.2 billion in funding for a US space firm. The Japanese company has made a pledge to President-elect Trump to invest $50 billion in the US economy.
Nintendo rebounded 0.22 percent after tumbling seven percent Monday as gamers -- and investors -- were left underwhelmed by its latest mobile game, Super Mario Run.
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