Japan's Nikkei share average fell on Tuesday but remained above 10,000, with the yen's climb to a three-week high against the dollar prompting investors to lock in profits on blue-chip exporters that have logged sharp gains since January.
"The yen's return to strength is driving the market break and it is easier for investors to take profits because of this, but there is plenty of dip-buying to provide support," said Masayuki Otani, chief market analyst at Securities Japan.
Toyota Motor Corp, which has soared 38.6% this year, slipped 0.3%, while Sony Corp lost 0.6%, although it still has a year-to-date gain of 23.5%.
The dollar was last trading at 81.93 yen after it hit a three-week low of 81.55 on the EBS trading platform in early Asian trade on Tuesday, as investors reduced massive short yen positions built up in recent weeks.
The Nikkei index closed 0.6% lower at 10,050.39, further retreating from a one-year high near 10,255 hit last week and down for six of the last 10 sessions, raising concerns that this year's rally is running out of steam.
The Nikkei posted its best first-quarter performance in 24 years this year and kicked off the new financial year with modest gains on Monday.
The benchmark has rallied nearly 19% since the start of January on the back of a global equities upturn, after a run of robust US economic data and liquidity-boosting programmes by central banks.
Many market participants have been expecting pension funds and insurance firms to pick up equities in the new fiscal year.
Pension Funds
But Jun Yunoki, equity strategy analyst at Nomura, said he believed pension funds were more likely to be sellers of equities.
"I think they are in the mood to sell. When the Topix declines a lot, they would rebalance their portfolios by buying equities," Yunoki said.
"The Topix was almost flat last fiscal year. Pension funds will not buy a lot. They have been trying to shed off risk assets in the longer trend."
The broader Topix index lost 0.6% to 851.02 on Tuesday.
Nearly 1.7 billion shares changed hands on the main board, down from 2.16 billion on Monday and last week's average of 1.98 billion.
Bucking the overall market, Fuji Media Holdings Inc gained 2% after Goldman Sachs upgraded the media company to "buy" from "neutral".
Goldman also downgraded Toho Co Ltd to "neutral" from "buy". Toho shares were down 2.4%.
Stock valuations on the Nikkei at the Monday close imply an earnings-per-share compound annual growth rate of 1.3% for the index as a whole over the next five years, data from Thomson Reuters StarMine showed.
That means the market is pricing the index as if EPS growth will be 1.3% every year over the five-year period, on a compound basis. This is down from 1.5% in mid-March but up from minus 0.8% in January.
Implied five-year EPS CAGR for the S&P 500 is 4.1%.