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The Nikkei fell 1.8% to 11,153.16, snapping its longest weekly winning streak in 54 years by ending 0.3% down on the week. The benchmark also pulled further away from a 33-month high of 11,498.42 struck on Wednesday.
A sell-off stretched into its second day on concern that the euro zone will continue to stumble, after European Central Bank President Mario Draghi said on Thursday that there were more negative risks in the euro zone than positive ones.
"It looks as if investors are using this as a reason to sell off and it seems somewhat far-fetched," said Hiroyuki Fukunaga, CEO of Investrust, echoing other market players who said weakness in the euro zone is already priced in.
Yet with the Nikkei rising nearly 30% from mid-November, when Prime Minister Shinzo Abe, then a candidate for leader of the opposition, began calling for aggressive monetary easing, investors have waited for the right time to take profits.
Sony Corp led the losses, tumbling 10.1% after profits in the October-December quarter badly missed market expectations. It was the second-most traded stock on the main board.
Sony's share price had rocketed 58.5% between the beginning of January to Thursday, catching up with the Nikkei's sharp gains after lagging through November and December.
"It is difficult to expect further upside from the current level," said Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management. "The question (for investors) is can Sony launch a new product which would surprise users and make them say: 'We want Sony's product, not Apple's, not Samsung's'?"
Panasonic Corp and Sharp Corp, which both saw steep gains after pulling into the black in the third quarter following deep losses in the previous year, also sagged on Friday, losing 5.4% and 1.2%, respectively.
Analysts said that investors were staying on the sidelines on Friday because the yen firmed to 93.31, retreating from a 33-month high of 94.06 on Wednesday, and also out of reluctance to take big positions before a three-day weekend. Markets are closed on Monday in Japan for a national holiday.
A lull in the yen's slide hit exporters, who have seen handsome gains on the back of its recent weakness, which boosts their overseas revenues once repatriated. Canon Inc, Nikon Corp and Mazda Motor Corp dropped between 2.3% and 3.5%.
"In the short term, Japanese shares are likely to see a correction if the yen does not weaken further," said Chisato Haganuma, chief strategist at Mitsubishi UFJ Morgan Stanley Securities.
But he said that aggressive buying by foreign investors will likely support the market in the mid-term.
Analysts also said that heavy trading volume indicates investors' strong interest in the Tokyo market. On the Tokyo Stock Exchange's main board, with 5.14 billion shares changing hands on Thursday, its second highest volume on record.
The broader Topix dropped 1.2% to 957.35 on Friday, with 4.23 billion shares changing hands, slightly lower than Thursday.
Cherries for picking
Fujitsu Ltd bucked the market trend, jumping 5.1% to a 10-month high after the company said it would reorganise its microchip business and join with Panasonic Corp to combine their struggling LSI chip units, which produce highly customised chips used in a range of consumer electronics.
Shares of All Nippon Airways Co Ltd and Japan Airlines Co Ltd also rose nearly 5% after US agencies cleared Boeing Co to restart test flights of the 787 Dreamliner, which was grounded due to a series of battery incidents.
The two Japanese airlines operate nearly half of the 50 Dreamliners in service, with ANA owning the most with 17, representing 7% of its fleet.
GS Yuasa Corp, the battery maker for the Dreamliner, shed 1.5%.
