* Nikkei down 0.9 percent, Topix off 1.0 pct
* Nikkei may recover 10,600 if dollar/yen rises above
* Defensive shares attract buying
* Mothers market strong, small-to-mid size shares up
* Market cautious before earnings season - trader
By Ayai Tomisawa
TOKYO, Jan 8 Japan's Nikkei fell on Tuesday as
investors turned cautious over the index's recent rapid gains
and sold shares in exporters as the yen's depreciation paused,
while buying in defensive shares supported sentiment.
The Nikkei dropped 0.9 percent to 10,508.06 points,
just above its 5-day moving average of 10,502.67.
Investors took profits on some exporters' recent gains now
that the weakening trend of the yen appears to have paused for
the time being. But with sentiment still positive amid
expectations for further monetary easing, investors shifted to
laggard domestic demand-sensitive shares such as food processors
and drug makers.
Toyota Motor Corp shed 2.0 percent, Nissan Motor Co
dropped 1.1 percent and Fanuc Ltd weakened 1.3
On the other hand, Ajinomoto Co gained 2.2 percent
and Chugai Pharmaceutical Co added 1.1 percent.
The dollar traded at 87.43 yen, retreating from a 2-1/2-year
high of 88.48 yen marked on Friday as the dollar's robust
appreciation over the past month had investors opting to book
profits despite expectations of further Bank of Japan stimulus
later in the month.
"If the yen drops to 88 to the dollar, the Nikkei will
likely recover the 10,600-line and even rise further," said
Kenichi Hirano, a strategist at Tachibana Securities, adding
that the market has stayed sensitive to daytime currency moves.
While the main board succumbed to profit-taking mainly by
foreign investors, small-to-mid size companies attracted buying
as domestic retail investors have returned to the market, said
Hiroichi Nishi, general manager at SMBC Nikko Securities.
The Mothers Exchange, which lists small-to-mid size
companies, was up 1.1 percent, hitting its highest level since
CyberAgent Inc added 1.6 percent and Mixi Inc
advanced 0.7 percent.
CAUTIOUS MOOD BEFORE 3Q EARNINGS
As the majority of companies start releasing their earnings
for the Oct-Dec period mid to late this month, investors are
growing cautious amid anticipation of sluggish growth in
corporate profits, traders said.
"Some stocks that have been rising won't see justifications
to rise further such as industrial machinery makers and some
autos as their third-quarter earnings are seen weak," said a
trader at a foreign brokerage. "Broadly, people remain bullish
but the market probably won't rise in a straight line."
But he added that with expectations the central bank will
come up with further stimulus measures, falls may be limited
despite possible further corrections in the market.
New Prime Minister Shinzo Abe, whose Liberal Democratic
Party (LDP) surged to power in December's lower house election,
has called on the central bank to take bolder monetary stimulus
measures to beat deflation, and possibly hold it accountable not
just for pushing up prices but also boosting job growth.
A final decision will be made at the Bank Of Japan's next
rate review on Jan. 21-22, when it will debate setting a higher
inflation target than the current 1 percent goal.
The Nikkei has risen about 21 percent since mid-November
when Abe started calling for aggressive easing, taking the index
deeper into overbought territory.
Its 14-day relative strength index is at 73.07, above the 70
level which is considered overbought and often indicates an
Sharp Corp bucked the overall market weakness and
climbed 3.9 percent after the struggling TV maker said it had a
better-than-expected operating profit for October-December, as
it scrambles to generate profits in hopes of securing fresh
The broader Topix shed 1 percent to 871.88 in active
trade, with 3.52 billion shares changing hands.