(Reuters) - The Nikkei average slipped on Thursday to pull back from a three-week closing high hit the previous day, hurt by worries that turmoil in Europe will keep the euro weak and hurt Japanese exporters.
The yen's strength against the euro is not seen as a temporary, short-term problem and it's pressuring the market, said Yutaka Miura, a senior technical analyst at Mizuho Securities.
The focus this year is on whether Europe's debt problems will be settled and when those problems will begin to impact the United States. There are no other themes this year except Europe.
The euro was trading just above 99 yen on Thursday, near an 11-year low.
The Nikkei .N225 lost 0.8 percent to 8,488.71, breaking below its 25-day moving average of 8,503 after gaining 1.2 percent in the previous session.
The broader Topix .TOPX slipped 0.9 percent to 736.28.
Major steelmakers came under pressure after a report that Toyota Motor Corp (7203.T) is seeking a cut in steel prices of about 5,000 yen ($65) per tonne from Nippon Steel Corp (5401.T) and its peers.
Nippon Steel shed 2.1 percent to 191 yen after also saying it will book an 84.6 billion yen ($1.10 billion) appraisal loss on its shareholdings for October-December.
JFE Holdings (5411.T) shed 2.2 percent and Nisshin Steel Co (5407.T) fell 1.7 percent.
Elpida Memory (6665.T) sank 7.4 percent to 350 yen after a newspaper said it is seeking $500 million in aid, the latest development in its fight for survival amid tumbling product prices and heavy competition from Asian rivals.
The Yomiuri newspaper said Elpida is also considering asking for help from Toshiba Corp (6502.T). Elpida declined to comment, while Toshiba President Norio Sasaki told reporters he had been approached by various parties about giving support to Elpida.
In the absence of breaking news out of Europe, market participants are focusing on new economic data from the United States for more signs of life in the world's largest economy.
The key point here is if positive economic data will make the market confident about a U.S. economic recovery and whether there is any impact on the dollar, said Hiroyuki Fukunaga, CEO of Investrust, on U.S. jobs data due out later this week.
Trading was light, with 1.26 billion shares changing hands on the main board, down from Wednesday's 1.44 billion. Declining shares outpaced advancing issues 1,144 to 414.
HOPES FOR RECONSTRUCTION
Investor sentiment is still fixed on the massive debt refinancing in Europe early this year, and that mentality will not change unless there is positive news out of that region and also significant reconstruction spending in Japan, said Hajime Nakajima, a sales trader at Cosmo Securities in Osaka.
Nakajima said reconstruction spending on infrastructure, as well as a broad recovery in corporate earnings, will be key for Japan to weather Europe's financial woes.
Nomura said it expects Japanese equities to rebound in the first half of 2012, with the Nikkei going above 10,000, more than 17 percent above its current level.
In 2012 H1, we expect good news in the form of an easing of financial concerns in Europe and greater-than-expected strength of the global economy and emerging economies in particular, and we thus expect the Japanese stock market to be driven by trading companies, machinery, electronics/precision and financials, Nomura wrote in a note.
Although the Topix 500 .TOPX500 carries a similar 12-month forward price-earnings valuation of 11.7 to the U.S. S&P 500 .SPX, nearly 60 percent of Japanese companies are trading below their net asset value, data from Thomson Reuters Datastream showed.
That compares with 15 percent of the S&P 500 firms carrying a one-year forward price-book ratio of below 1.