TOKYO The Nikkei share average edged higher on Monday as buying in defensive stocks reversed early losses.
The Nikkei .N225 added 0.4 percent to 12,7329.85 after trading as low as 12,549.82 on the back of weak U.S. stocks on Friday. Monday's gain took the index above its 100-day moving average at 12,734.37
"It's a mixed flow so far. It doesn't seem to be the type of guys that work on the cash side. It could be something else - high-frequency trading driven or it could retail driven," a senior trader at a foreign bank said. "There is nothing on the cash side here."
"Defensives are outperforming but we are starting to see some tech names are popping up to positive territory."
Amid market gyration and uncertainty over whether the U.S. Federal Reserve will start to scale back its massive stimulus, investors are likely to be cautious ahead of a two-day U.S. central bank meeting starting on Tuesday.
Within defensive plays, the food sector .IFOOD.T was up 2.8 percent and Japan Tobacco (2914.T) gained 4.4 percent, while Takeda Pharmaceutical Co Ltd (4502.T) rose 2.3 percent and peer Eisai Co Ltd (4523.T) advanced 2.7 percent.
The broader Topix .TOPX index climbed 1.1 percent to 1,068.22 on Monday morning, with volume at 18 percent of its full daily average for the past 90 trading days.
The real estate sector .IRLTY.T, which had rallied 70 percent this year to May 22 as it is seen to benefit most from Japan's push to reflate the economy, remained under pressure.
It was the worst sectoral performer on Monday, down 2.5 percent. The sector has lost nearly 28 percent from a 5-1/2 year high touched on April 12.
Goldman Sachs, however, remained upbeat on the market, maintaining its 12-month Nikkei target of 17,000, and said the pullback offered another opportunity to invest in reflation and consumption-related stocks.
"The yen is not the sole driver of Japan's profit recovery. Evidence is growing that consumption, production and housing investment are improving, so even if the dollar/yen averages 95 in FY2013-FY2014, EPS growth would still reach nearly 70 percent," the brokerage wrote in a note.
Investors, mainly hedge funds, have been cutting their long Japanese equities and short yen positions on the Fed's stimulus concerns and after the Nikkei had rallied more than 80 percent from mid-November to its 5-1/2 year peak hit on May 23.
The extreme volatility and big falls in the past few weeks have been accompanied by disappointment over the government's recently unveiled growth strategy, which has led some investors to trim back their high expectations for Prime Minister Shinzo Abe's growth-spurring policies.
The Nikkei has fallen 20 percent since hitting the multiyear peak on May 23, staying in bear market territory, but is still up 3 percent since April 4, when the Bank of Japan unveiled sweeping stimulus measures and has risen 22 percent this year.
(Editing by Eric Meijer)