Japan's Nikkei stock average lost 0.5 per cent on Monday as investors moved to lock in profits after the benchmark finished at an 18-month high on Friday, but expectations for gains next quarter limited falls.
The Nikkei's Friday rise, which at one point briefly took it over 11,000, plus the fact that Friday was the last day for investors to buy many Japanese stocks and still get dividends on them for the business year that ends this month, mean the benchmark is vulnerable to dips, market players said.
But expectations for the next quarter, particularly after Japanese results, will limit any slides as investors turn their eyes to a host of indicators and events this week, including US jobs data on Friday.
"At this point, we're predicting that some 80 per cent of companies are likely to see improved profits, and some analysts are even more optimistic," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities.
"This optimism will really start showing up in the market at the end of April, when Japanese earnings move into high gear, and in the next quarter the Nikkei may well rise as far as 12,000."
The benchmark Nikkei shed 57.24 points to 10,939.13 after earlier falling as low as 10,901.20. Market players said the ex-dividend impact was likely to have trimmed about 70 points from the Nikkei.
The broader Topix fell 0.3 per cent to 963.40.
Other market players said that while the Nikkei is likely to grind steadily higher during the next quarter, rises may be limited to around 12,000, after which stocks could fall back a bit on a sense that valuations are no longer so inviting.
According to I/B/E/S, the Nikkei's price-to-book ratio is currently at 1.3, compared to 2.2 for Hong Kong and 1.6 for Korea. The Topix is even more appealing at 1.2.
Shares with high dividends, such as drugmakers, were vulnerable.
Eisai, which fell on Friday on news it would not seek early approval for its sepsis medication, extended losses by 3.9 per cent to 3,365 yen. Fellow drugmaker Astellas Pharma lost 3.1 per cent to 3,330 yen and Takeda lost 2.9 per cent to 4,130 yen.
Seven & I Holdings climbed 3.6 per cent to 2,249 yen after Morgan Stanley Japan Securities analyst Yukimi Oda upgraded the company's shares to "overweight" from "equal-weight" and raised the price target to 2,700 yen from 2,400 yen, saying Seven & I was the retailer set to gain the most from a slower CPI fall and better employment.