The Nikkei share average edged up on Friday after a sharp sell-off the day before as investors positioned for possible gains ahead, although worries about the deepening debt crisis in Europe muted any optimism.
Scandal-hit Olympus Corp (7733.T) seesawed in volatile trading after the 92-year old company was placed on the Tokyo Stock Exchange's supervisory list on Thursday, a step toward a possible delisting after it failed to meet a November 14 deadline to report earnings.
Meanwhile German Chancellor Angela Merkel rejected the idea that her government might favor a smaller euro zone on Thursday as Italy moved closer to a national unity government. Meeting in Hawaii, Asia-Pacific finance ministers agreed to bolster their own economies to protect against fallout from Europe's troubles.
Europe is going to continue to be a worry, but I do think that stocks are entering a calmer period and will not fall much further, said Yutaka Shiraki, a senior strategist at Mitsubishi UFJ Morgan Stanley Securities.
The Italian Treasury managed to sell 1-year bills at yields of less than 7 percent -- a threshold that investors believe would render its debt burden unsustainable, although the country still paid its highest yield in 14 years.
U.S. stock futures rose, suggesting investors were also positioning for gains, with S&P 500 e-mini futures up 6.5 points at 1,243.75.
The Nikkei .N225 rose 0.2 percent to 8,514.47, but for the full week it chalked up a loss of 3.3 percent. The broader Topix index .TOPX slipped 0.2 percent to 729.13, showing a weekly loss of 3 percent.
Volume was moderate with 1.66 billion shares changing hands, down from Thursday's 1.96 billion shares.
The Nikkei has support at the October 6 intraday low of 8,463.83 and then at the October 5 low of 8,343.01, strategists said.
The news out of Europe changes almost daily and it is certainly difficult for traders to move, forcing them to stick to a narrow range in this uncertain environment, said Yumi Nishimura, a senior technical analyst at Daiwa Securities.
Japanese pension funds were buying stocks in the afternoon to prop up the market, a trader said.
Market participants remained uneasy due to the massive scandal engulfing Olympus, the company that until last month had been considered a paragon of corporate stability.
Olympus and another scandal-hit firm, Daio Paper Corp (3880.T), have stoked worries about Japan's corporate governance after they were placed on the Tokyo bourse's supervisory list on Thursday. If they fail to meet a new deadline of December 14 to report earnings they will be automatically delisted.
Olympus fell 5 percent to 460 yen, topping the main board as the heaviest-traded share by turnover, bringing its total losses to 81.5 percent since the scandal erupted on October 13.
Traders said the volatility would likely persist, with buyers emerging as the stock sinks close to its book value, thought to be around 430 to 436 yen.
This is what the traders are rallying on right now, and that perceived price point is creating demand, said Masayoshi Okamoto, head of dealing at Jujiya Securities.
A source told Reuters on Friday that the company would meet with a group of its creditors next week to explain its circumstances.
Daio fell 18.8 percent to 433 yen, making it the biggest percentage loser on the main board on Friday. The tissue maker revealed last month that Chairman Mototaka Ikawa borrowed 10.6 billion yen ($140 million) from seven Daio subsidiaries, diverting the money to his own accounts. Ikawa stepped down as chairman on Sept 16.
Toyota Motor Corp (7203.T) shares underperformed the broader market, ending down 1.8 percent at 2,454 yen after dropping as low as 2,451 yen, its lowest level since 1996. The carmaker underperformed rivals, with Honda Motor Co (7267.T) up 0.5 percent at 2,272 yen and Nissan Motor Co (7201.T) up 0.6 percent at 705 yen.
Traders cited continued selling of Toyota after it said on Wednesday it would recall 550,000 vehicles worldwide to replace an engine component that could hamper steering. It also withdrew its annual profit guidance on Tuesday to assess the impact of the massive floods in Thailand.
Inpex Corp (1605.T) lost 1.6 percent to 506,000 yen and was the second-heaviest traded issue by turnover on the main board, with the firm denying a report it was delaying a gas project.