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Japanese shares retreated 0.3% from a nearly five-year high on Friday as investors booked profits ahead of the Golden Week holidays, though they were still 4.3% higher on the week.
A slight recovery in the yen and a string of disappointing earnings also undermined the market, preventing the benchmark Nikkei share average from breaching the psychological resistance level of 14,000.
The Nikkei closed down 41.95 points at 13,884.13, after moving in and out positive territory throughout the session. It rose as much as 0.4% at one point to 13,983.87, setting a fresh high since June 2008 and coming within sight of the 14,000-mark.
Investors locked in profits to hedge risks ahead of a series of public holidays from April 29 to May 6.
The Bank of Japan kept monetary policy steady on Friday, a widely expected move after it unveiled aggressive stimulus measures earlier this month aimed at achieving its 2% inflation target in two years.
After the stock market closed, the BOJ upgraded its economic outlook, projecting steady growth and rise in inflation to its target of 2% by 2015.
The yen rose to one-week high of 98.61 yen per dollar as the BOJ provided no fresh impetus to sell the yen.
"There is little question that today's BOJ meeting has been a point of focus for the market," said Naoki Fujiwara, chief fund manager at Shinkin Asset Management.
The benchmark Nikkei has surged 60 % since mid-November, when Shinzo Abe, who became prime minister in December, promised bold expansionary monetary and fiscal policies to revive the economy.
During the same period, the yen has weakened 22 % against the dollar.
On Friday, the broader Topix index fell 1% to 1,161.19. Trading volume on the main board was relatively light, with 3.95 billion shares changing hands, compared last week's average trading volume of 4.07 billion.
The real estate sector dropped 2% and securities companies lost 1.1% as investors locked in profits in these two sectors seen as benefiting the most from Japan's reflationary push.
MIXED CORPORATE EARNINGS
Disappointing earnings from companies like Advantest Corp <6857.T> and M3 Inc <2413.T> also weighed on the market.
"The market obviously doesn't like earnings disappointment. Things like M3 and Advantest are getting a little bit of a beating," a senior dealer at a foreign brokerage said.
Tech concern Advantest sank 7.9% and was the top-weighted loser in the Nikkei, while medical equipment maker M3 dived 10.2 % after both companies reported disappointing fourth quarter results.
Canon Inc lost 1 , extending the previous session's 6.4% decline after its annual earnings guidance missed analysts' forecast when it announced its first quarter results after the bell on Wednesday.
Bucking the trend, construction machinery maker Komatsu Ltd gained 2.6% after its operating profit forecast for this financial year ending March 2014 beat market consensus, even though last year's profit failed to meet its twice revised-down estimate.
Although it is still early in the quarterly reporting season, only two out of the 16 Nikkei companies that have reported so far beat market expectations, data from Thomson Reuters StarMine showed.
"New financial year profit guidance has a greater impact on share prices than results surprises. Japanese companies typically issue conservative guidance at the start of the fiscal year," Goldman Sachs strategists wrote in a note.
"Given the recent sharp forex move, companies in export-related sectors may set conservative rate assumptions relative to current spot rates, and if this is the case guidance could fall well short of market expectations and be perceived as a headwind."
But Citigroup said investors should not be fazed by conservative earnings forecasts for this financial year ending March 2014.
"We expect corporate earnings forecasts to be fairly conservative. However, we expect them to be revised up, as well as market consensus forecasts, as we get further into FY3/14, on the pick-up in the economy and previous yen weakening against the dollar," it said in a report, adding that it expected the Topix to reach 1,320 by end-March 2014.
