The Nikkei average edged lower, giving up sharp morning gains made after Japanese authorities intervened to curb persistent yen strength as investors locked in profits on concerns the yen won't stay down for long.
Big manufacturers Honda Motor Co (7267.T), Toshiba Corp (6502.T) and Panasonic Corp (6752.T) all skidded ahead of their earnings reports later on Monday.
The three are among companies who have faced headwinds from yen appreciation, which has cut deeply into many manufacturers' earnings, as well as recent flooding in Thailand which has disrupted production at facilities there.
The Bank of Japan intervened in foreign exchange markets to counter speculators driving up the yen as the currency's strength threatens to derail the economy's recovery from the March earthquake, Finance Minister Jun Azumi said.
The Nikkei <.N225> rose as much as 1.1 percent to a three-month intraday high after the dollar spiked higher against the yen, and some investors used the opportunity to take profits.
The intervention definitely had a major short-term effect and sharply drove up both the dollar and the Nikkei, said Yutaka Miura, a senior technical analyst at Mizuho Securities.
The Nikkei was down 0.3 percent at 9,025.98 but on track for a monthly gain of nearly 4 percent. The broader Topix index <.TOPX> slipped 0.3 percent to 768.85.
The Nikkei rose as high as 9,152.39, its highest intraday level since August 8, soon after the intervention began.
Resistance lies around 9,400 yen, the bottom of Nikkei's trading range in June, said Eiji Kinouchi, chief technical analyst at Daiwa Securities.
The Tokyo market has a few obstacles now and the yen is one of them. Then there's question about corporate governance as we've seen in Olympus case. There's also skepticism over whether the euro zone's bailout package is enough, Kinouchi said.
He and others said it remained uncertain if intervention would succeed in turning around the yen's rising trend.
I'd say today's intervention took out about one-sixth of the gloom in the market, Kinouchi added.
Scandal-hit Olympus Corp (7733.T) was down 0.1 percent at 1,216 yen, taking a breather from recent volatile price moves but remained the heaviest-traded issue by turnover.
Manufacturers whose shares have suffered from concerns about the strong yen's impact on earnings came off session lows hit before the intervention, though momentum faded.
Panasonic fell 1 percent to 818 yen, after the Nikkei business daily reported on Sunday that the electronics maker is set to post a net loss of 300 billion yen ($3.96 billion) in the year to March 2012, hurt by the slowdown in the global economy and the yen's strength.
Honda shed 2.1 percent to 2,446 yen, underperforming rival car makers, after a weekend report that Honda will likely have to keep its Thai factory shut for about six months due to severe flooding. The move is seen affecting 3 percent of its annual global car output, the Nikkei reported on Sunday.
Toyota Motor Corp (7203.T) was up 1.6 percent while Nissan Motor Co (7201.T) was 2.1 percent higher.
Toshiba was down 1.9 percent at 356 yen. The electronics maker has seen its core flash memory operations suffer from lopsided currency exchange rates and its operating profit for the April-September period is believed to have tumbled 24 percent on the year to around 80 billion yen, Nikkei reported.
Volume was moderate, with 1.28 billion shares changing hands on the main board, on track to fall short of Friday's volume of 2.16 billion shares.
($1 = 75.760 Japanese Yen)
(Additional reporting by Hideyuki Sano; Editing by Edwina Gibbs)