The Nikkei stock average ended lower on Monday, giving up sharp intraday 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., Toshiba Corp. and Panasonic Corp. all tumbled ahead of their earnings reports after the close 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.
Tokyo 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 rose as much as 1.1 percent to a three-month intraday high after the dollar spiked against the yen, and some investors used the opportunity to take profits.
The stock market's move today was shocking, in that the currency intervention pushed up the dollar and the euro against the yen, helping to ease one of the worries on investors' minds, said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.
But the Nikkei was still unable to hold any gains, showing that investors are not confident that the yen will remain down, Ogawa said.
Strategists said they feared the yen would come under renewed upward pressure again this week if the U.S. Federal Open Market Committee discusses easing at its meeting on Tuesday.
Any hints from the FOMC that QE3 is being considered would weigh on the dollar, and give the yen a lift, said Takashi Ushio, head of the investment strategy division at Marusan Securities Co.
The Nikkei ended down 0.7 percent at 8,988.39, but still logged a monthly gain of 3.3 percent. The broader Topix index dropped 1 percent to 764.06.
The Nikkei rose as high as 9,152.39, its highest intraday level since August 8, soon after the intervention began in the morning session.
Volume was moderate, with 1.78 billion shares changing hands on the main board, below Friday's volume of 2.16 billion shares. Decliners topped advancers 956 to 560.
Resistance lies around 9,400 yen, the bottom of the Nikkei's
trading range in June, said Eiji Kinouchi, chief technical analyst at Daiwa Securities, though it was unclear if the benchmark would test this level soon.
The Tokyo market has a few obstacles now and the yen is one of them. Then there's the question about corporate governance as we've seen in the case of Olympus. 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.