A limited correction in the dollar and a more defensive tone surrounding risk appetite were crucial factors in triggering a corrective decline in Japanese equities, although overall confidence held firm.
There was a more defensive tone surrounding global equities on Thursday with concerns that rising yields would undermine equity-market support. The US S&P 500 index declined 0.38% on the day and there was a sharper decline of over 1.5% in the Nasdaq index.
The decline in US equities pulled the Japanese index lower and oil prices also corrected from their highest levels, which had some negative impact.
The dollar also corrected lower with the US currency dipping back below the 114.00 level, although there was still solid US support on dips, which limited yen gains and also limited selling pressure in equities.
Risk appetite maintained a slightly more defensive tone during Friday as volatilities level remained higher, which encouraged a more defensive tone.
The Chinese central bank measures to curb capital outflows from the country by tightening regulations on offshore loans helped underpin sentiment surrounding the yuan as it was fixed stronger and the steadier tone was important in providing some protection to equities.
The Nikkei index edged lower at the open after the US close and drifted lower during the morning session. There was a further dip lower following the break with lows just above 18,300, but the market rallied in the last hour of trading as the dollar stabilised.
At the close, there was a decline of 87.04 points and 0.47% at 18,426.08. The index was still able to post a fourth successive weekly gain.
Markets will be braced for further volatility following the US employment data. The Italian referendum result is also liable to trigger sharp moves in equity markets at the Asian open next week with the risk of a significant opening gap.