Tokyo stocks slipped 0.56 percent on Thursday morning as the yen strengthened, giving up early gains stoked by strong data on US new home sales.
The Nikkei 225 index eased 82.82 points to 14,648.46 by the break, while the Topix index of all first-section shares slipped 0.98 percent, or 11.90 points, to 1,208.02.
The benchmark Nikkei, which opened the session 0.11 percent higher, was likely to trade in a narrow range after Wall Street was mostly lower despite the upbeat US economic data, dealers said.
"The market remains somewhat overheated, and lacking in wholly fresh, positive trading cues," said SMBC Nikko Securities general manager of equities Hiroichi Nishi.
The dollar had risen against other major currencies on Wednesday after strong sales of new US homes triggered fresh talk that the Federal Reserve will wind down its massive stimulus programme soon.
But the greenback slipped in morning Tokyo trade, to 100.04 yen from 100.26 yen in New York on Wednesday.
Summer holidays and investors awaiting a slate of corporate earning in Japan next week had many players keeping to the sidelines, dealers said.
Nissan, which reports quarterly results later Thursday, was down 1.07 percent at 1,106 yen.
Kao, the parent of cosmetics firm Kanebo, fell 6.96 percent to 3,005 yen after the subsidiary said more than 2,000 Japanese had complained about skin discolouring after using its whitening products while it had also widened a consumer recall outside Japan. Kao shares lost more than six percent on Wednesday.
Canon tumbled 6.12 percent to 3,220 yen after the camera and copier maker cut its full-year profit forecast by 10 percent on fears about slowing digital camera sales in China and Europe.
US stocks Wednesday closed mostly lower, with weak earnings and a gloomy outlook from Caterpillar helping to push the Dow 0.16 percent lower after it ended at a new record high on Tuesday.
-- Dow Jones Newswires contributed to this article --