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Osaka - A deepening food radiation scare and slow progress in power restoration at a stricken nuclear plant reinforced profit taking sentiment in Tokyo stocks Wednesday after a recent rebound.
However, the Nikkei's 1.60% slide was limited compared to last week's sell-off as investors weighed the impact of Japan's biggest recorded earthquake, and its devastating tsunami, on the world's third-largest economy.
For the first time since markets opened after the quake, the Bank of Japan refrained from pumping cash into the financial system in a sign it was satisfied there was enough liquidity in the market to meet demand.
Dealers said the BoJ was also playing its part to increase the effectiveness of the concerted intervention by Japan and its Group of Seven partners aimed at weakening the yen by leaving its injections in the system, boosting supply.
The Nikkei 225 index fell 153.26 points to 9 455.06 by noon. The Topix index fell 6.99 points, or 0.81%, to 861.14.
Dealers said foreign investor buying limited the market's losses.
"Domestic investors are not very bullish so the key question is what lies behind the foreign investor optimism on Japan stocks and if that will continue," said Kenichi Hirano, operating officer at Tachibana Securities.
Other analysts said Japan's equity market was well positioned to outperform. "Valuations are now attractive from a historical perspective," noted Capital Economics.
But dealers have warned any fragile optimism would erode on signs of a setback in the delicate operations to restore power to overheating reactors at the Fukushima atomic plant, which was crippled by the March 11 disaster.
A 9.0 magnitude earthquake triggered Japan's worst crisis since World War II, leaving nearly 23 000 dead or missing after the resulting tsunami ravaged the northeast coast. A stock sell-off last week was exacerbated by nuclear fears.
Engineers racing to cool reactors at the complex partially restored power to a control room on Tuesday, but crucial cooling systems remained offline.
Japan's radiation food scare has rippled across the world. The United States blocked imports of dairy and other produce from regions around the disaster-struck power plant.
Japan ordered the halt of consumption and shipments of a range of farm products grown near the quake- and tsunami-hit facility after health ministry tests found vastly elevated levels of iodine and caesium.
The impact of the quake and tsunami on production facilities exposed to power blackouts and a fractured supply chain weighed on automakers scrambling to restart factories.
Nissan Motor was off 1.79% at ¥711 and Toyota, which will not carry out auto assembly until at least Saturday, was down 1.49% at ¥3 295.
A prolonged disruption of Japanese component supplies could have a significant impact on 2011 auto production and profitability, dealers say.
The yen was relatively steady after Japan and its G7 allies on Friday intervened jointly in currency markets for the first time in a decade to calm turmoil sparked by the country's worst natural disaster in nearly a century.
The Japanese unit strengthened slightly to ¥80.87 against the dollar from ¥80.92 late Tuesday in New York. It had soared to ¥76.52 against the greenback on Thursday before the intervention.
The yen was also up at ¥114.58 to the euro from ¥115.11.
Tokyo on Tuesday threatened a further yen-selling intervention by the Group of Seven leading industrialised nations, saying joint action was not limited to last week's coordinated move.
