Japan's Nikkei average fell for a second session on Thursday and slipped further from a one-year high hit earlier this week as investors locked in profits from a meteoric January-March rally that is poised to be its best first-quarter performance in 24 years.
The benchmark has soared more than 19% so far this year on the back of a global equities rally as accommodative monetary policies by central banks and strong US economic data drew investors back into riskier assets.
On Thursday, the Nikkei eased 0.7% to 10,114.79 as investors cashed in ahead of the Japanese fiscal year-end.
Contributing to the dip was the slightly stronger yen against the greenback, with the dollar last trading at 82.57 yen, off this Tuesday's high of 83.39.
Exporters, sensitive to the Japanese currency, suffered, with Toyota Motor Corp off 1.7%, Honda Motor Corp losing 2.2% and industrial robot maker Fanuc Corp down 1.8%.
"I do feel that we are now stepping away from liquidity market to a market that is driven principally by earnings and actual fundamentals," said Masahiro Ayukai, investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
The Nikkei marked a one-year closing high on Tuesday following comments by US Federal Reserve Chairman Ben Bernanke that did not rule out further action to support growth, although strategists said the surge was limited to one session.
"If market participants were convinced that this (QE3) was a real possibility the market would have remained strong even with the ex-dividend...The market is becoming much more sensitive to the actual economic outlook and earnings figures," said Ayukai.
Japanese fund managers cut their domestic stock weighting to 33.3% in March from a record high of 35.1% hit last month, a Reuters poll showed on Thursday, as they trimmed allocation of Asian stocks and ramped up purchases of European stocks and commodities.
Foreign investors also took a break from buying, as they turned net sellers for the week through March 24 after twelve straight weeks of buying, the latest data from Japan's Ministry of Finance showed.
"We saw a lot of profit-taking in the US and other overseas markets, we saw a couple of macro data points weaker than expected, so we have a little bit of profit-taking," a sales trader at a foreign bank said.
Market players said investors sought out retailers and defensives that rely on domestic demand instead of blue-chip exporters.
Japan's retailers were up 0.7% and pharmaceuticals advanced 0.8%.
The broader Topix fell 0.8% to 857.74.
