Japan's Nikkei share average dipped on Tuesday, although it held above the key 9,500-mark, as investors stayed cautious over signs that the index is overbought after a near 10% rally over the past month.
The Nikkei ended 0.1% lower at 9,525.32, but supported by its five-day moving average at 9,520.09.
The fall took the index away from "overbought" territory, but its 14-day relative strength index still stood near 70, a level which is deemed overbought and often signals possible near-term pull back.
The benchmark has risen 9.9% over the past month while the yen has softened after Shinzo Abe, the leader of the main opposition party which is expected to win a December 16 election, called for aggressive policy action from the Bank of Japan, including embarking on "unlimited easing".
Exporters have benefited the most, but lately investors started to take some profits on them. Among those which succumbed to profit-taking on Tuesday were Honda Motor Co, Nissan Motor Co, Sony Corp and Daikin Industries, down between 0.7 and 1.5%.
"We probably need a bit of pull back before it can take the next leg higher," said a Tokyo-based analyst, who declined to be identified. "We probably hold 9,000 ... The volume is getting pretty thin in the run-up to the year end."
According to Reuters data, Tuesday's most-traded Nikkei index was a put with a strike price of 9,250, a 2.9% downside from the current closing level, and a December maturity.
The next most-traded was a December call at 9,750, followed by another one at 9,500.
But some market participants said investors, who have missed the rally, may be forced to go long, which will help support the market.
"Some funds which invest in Asian funds have failed to chase the market higher over the past month as the market started rising too fast ... they could not make a quick investment decision," said Kenichi Hirano, a strategist at Tachibana Securities.
"Now they are trying to catch up with the rises and add more long positions on Japanese stocks when they fall."
Boosted by the rally in the past month, the Nikkei is up 12.7% this year, in line with the US S&P 500 but lagging a 14.3% rise in the pan-European STOXX Europe 600.
The broader Topix index eased 0.3% to 786.07 in light trade on Tuesday, with 1.54 billion shares changing hands, down from Monday's 1.94 billion and last week's daily average of 1.91 billion.
Fuji Heavy Industries Ltd lost 1.8% after J P Morgan downgraded the Subaru-brand carmaker to 'neutral' from 'overweight', but rival Suzuki Motor Corp climbed 4.1% after Deutsche Bank lifted its price target on the automaker.
Power utilities suffered on news that Japan Atomic Power Co, in which the firms hold a stake, may have to decommission one of its reactors after seismologists concluded the plant in western Japan is sitting over an active faultline.
Kansai Electric Power Co, Chubu Electric Power Co, Hokuriku Electric Power Co and Tokyo Electric Power Co shed between 1.4 and 4.4%.
