TOKYO Japan's Nikkei share average dipped on Monday after breaking above 10,000 to a fresh seven-month high as hedge funds locked in profits following a 3.7 percent rally in the previous two sessions and 17 percent so far this year.
The yen's weakening to near 11-month low against the dollar on the back of Friday's robust U.S. jobs data offered support to the market.
"The sellers right now are primarily hedge funds. The long-only accounts aren't doing very much but they are not usually at that active on Monday, and domestics are buyers," a senior dealer at a foreign bank said.
"We saw some domestic buyers in the market in the morning, although obviously they were into the market at the level above this. I don't think there is anything terrible going on. We are just in a consolidation period."
The Nikkei .N225 slipped 0.4 percent to 9,889.86 after climbing as high as 10,021.51, its highest level since early August last year.
Although the index has failed to hold above 10,000 for a second session in a row, technical charts show bullish signals from slow stochastics, a short-term momentum indicator.
"I think it's understandable that investors are waiting ahead of the BOJ and FOMC tomorrow, even though it does appear expectations are for very little action," said Stefan Worrall, director of equity cash sales at Credit Suisse in Tokyo.
The Bank of Japan began a two-day policy review on Monday and the U.S. Federal Reserve meets on Tuesday.
Canon Inc (7751.T) dropped 1.5 percent, construction machinery maker Komatsu Ltd (6301.T) lost 1.8 percent and bank Mitsubishi UFJ Financial Group (8306.T) fell 1.4 percent.
The broader Topix .TOPX eased 0.4 percent to 845.28. About 2.26 billion shares changed hands, down from a one-year high of 3.48 billion on Friday when the Nikkei's March futures and options expired.
Global equities have been buoyed by a run of strong U.S. economic data and accommodative monetary policies by global central banks that have sent investors back into risk assets.
Nomura expects a short-term setback for the Nikkei as it has rallied 17 percent since the start of the year.
"Owing to a lack of temporal corrections, we expect Japanese equities to correct to as low as 9,400-9,500 in the near term, but to head for 10,200-10,500 by around April as they wrap up the three-leg uptrend launched in November last year," Nomura said in a note.
Naomi Fink, head of Japan strategy at Jefferies Japan, said she expected any pullback on the Nikkei would likely be shallow after the dollar reached an 11-month high of 82.64 yen on Friday.
"It depends on how long your investment horizon is. I think there is good momentum. If we have a pullback, it will be time to buy," she said. "There might be overbought signal. If you are in for the short-term, it's a little bit risky."
Illustrating investors' upbeat mood, the Nikkei volatility index .JNIV, Japan's fear gauge, slipped 3.9 percent. The lower the volatility index, the higher the risk appetite.
(Editing by Jean Yoon)