Nikkei ends lower as profit-taking weighs on investor sentiment

Japan's Nikkei share average closed lower on Thursday as investors opted to book profits following the index's recent record highs. However, the market managed to pare most of its early losses as demand for buying on dips emerged, signalling underlying investor confidence.

The Nikkei witnessed its second consecutive day of decline, slipping by 0.11 per cent to settle at 39,166.19. Earlier in the session, the index had dropped by as much as 0.8 per cent, breaching the 39,000 level for the first time since February 22.

Shuji Hosoi, senior strategist at Daiwa Securities, remarked, "Investors bought back stocks after the Nikkei fell below 39,000." He noted that Toyota, in particular, saw gains despite the yen's strength, indicating continued interest in Japan's mega-cap stocks.

The yen strengthened against the dollar on Thursday following remarks by Bank of Japan board member Hajime Takata, who suggested that the central bank should consider overhauling its ultra-loose monetary policy.

Toyota's resilience in the market, with a 1.43 per cent increase, played a key role in driving the broader Topix to end slightly higher at 2,675.73, despite early losses. Tokyo Electron, a chip-making equipment maker, also rebounded to close 1.04 per cent higher.

However, market sentiment was dampened by data from the finance ministry showing that foreign investors turned net sellers of Japanese stocks during the week when the index hit an all-time high, according to Ryutaro Sawada, senior market analyst at Tokai Tokyo Research Institute. Foreign investors sold 200 billion yen ($1.33 billion) of Japanese stocks in the week ending February 24, marking a pause in a seven-week buying streak.

In other market movements, Aozora Bank surged by 9.46 per cent after public disclosure showed that activist fund City Index Eleventh owns 5.42 per cent of the Tokyo-based bank. Meanwhile, Seven & i Holdings rose by 6.19 per cent on reports suggesting that the convenience store chain operator was contemplating the sale of a supermarket unit to investment funds, although a company spokesperson denied the claims.

(With Reuters inputs)