* Nikkei down 0.8 pct, Topix off 0.7 pct * Market disappointed with BOJ staying 'hands off' now -analyst * Selling seen limited on expected new BOJ gov after April -analyst By Ayai Tomisawa TOKYO, Jan 23 (Reuters) - Japan's Nikkei share average fell on Wednesday, heading for a third straight day of decline after the Bank of Japan's latest aggressive easing fell short of some expectations for immediate action, triggering profit-taking in exporters such as automakers. Analysts said that investors were disappointed that there would be no action this year after the central bank on Tuesday set a 2 percent inflation target and enhanced its asset purchase programme by pledging open-ended asset purchases after 2014. The Nikkei dropped 0.8 percent to 10,627.46 by the midday break, after falling as much as 1.6 percent in early morning trade. It retreated for a third day in a row from a 32-month intraday high of 10,952.31 marked on Jan.15. "The central bank is basically announcing what it plans to do next year while it says it will stay 'hands off' for now. Can the market approve that? Of course not," said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities. He added that as soon as the BOJ announcement was out, the securities firm started receiving calls from European investors who were up early during the Asian time zone to prepare to sell stocks and buy the yen. But he added that a sell-off should be limited because while current BoJ Governor Masaaki Shirakawa's term ends in April, investors are positioned for further gains in the stock market as most expect him to be replaced by someone whose stance on aggressive policy easing matches that of Prime Minister Shinzo Abe's. "If Shirakawa's term were to last another two years or so, the market would have lost 500 points or more," Fujito said. "Whoever will be the next governor is expected to have a 'reflationary' mindset, in line with the government, and that's supporting sentiment." Abe has made clear that he wants a BOJ governor who shares his push to reflate the economy with a hyper-easy monetary policy combined with big fiscal spending. Exporters succumbed to profit-taking, with Toyota Motor Corp falling 1.2 percent, Nissan Motor Co dropping 2.0 percent and Fanuc Corp shedding 1.3 percent. The dollar last traded against the yen at 88.67. The dollar had risen to 90.06 yen immediately after the BOJ decision, not far from its 2-1/2-year high of 90.25 yen, but later retreated. Abe's calls for bold BOJ easing, dating back to mid-November when he was the leading candidate to win a general election, have helped to weaken the yen, in turn boosting exporters and sparking a 23 percent rally in the Nikkei. A weak yen lifts exporters' overseas earnings when repatriated. Market observers also noted that a correction is natural and should cool down the 'overbought' market. "Some investors have been waiting for the timing to take profits, as they have chased the market higher," said Hiroichi Nishi, assistant general manager at SMBC Nikko Securities. While some technical charts show that the stock market is 'overbought,' the toraku ratio, or up-down ratio, used for the first section of the Tokyo Stock Exchange, was at 142. The ratio is calculated by dividing the 25-day moving average of stocks that gained by the 25-day average of those that fell. A level above 120 signals an overheated market. They added that a correction could pull down the market to around its 25-day moving average of 10,355.90. Analysts also said that investors' focus has shifted to quarterly earnings announcements over the next few weeks, with recent gains in exporters such as autos and technology not yet backed up sufficiently by improvements in fundamentals. Among Wednesday's losers, TDK Corp fell as much as 4.5 percent to 3,110 yen, its lowest level in nearly four weeks, after the Nikkei business daily said the hard-disk drive and electronic parts maker was expected to report a 30 percent fall in operating profit for October-December due to weak demand for smartphone parts. The broader Topix dropped 0.7 percent to 895.09 in relatively thin trade, with 1.71 billion shares changing hands at the midday break, which is poised to post slightly lower trading volume than last week's daily average volume of 3.73 billion shares.