TOKYO Japan's Nikkei share average fell on Friday as investors pared exposure to exporters and banks while awaiting the weekend G20 meeting.
A deepening recession in the euro zone also dragged down shares, and sentiment deteriorated in late trade on news that a conservative, former finance ministry bureaucrat is the leading candidate to head the Japanese central bank.
The Nikkei closed down 1.2 percent at 11,173.83 after falling as much as 2.1 percent.
For the week, the Nikkei avoided a second straight weekly loss, squeezing out an 0.2 percent gain. Last week's drop snapped a 12-week winning streak, its longest since 1959.
Finance officials from G20 nations gathered in Moscow, where they are expected to discuss Japanese economic policies that have contributed to the yen's sharp decline against the dollar since mid-November. The Nikkei has added about 30 percent over the period.
"Investors who were waiting to take profits or shorting were active today," said Hiroyuki Fukunaga, chief executive of Investrust. "Now that most earnings are out and the yen's weakness has steadied, it's the best timing for them to take selling positions."
On Friday afternoon, the market was hit by a sell-off after sources close to the matter told Reuters that Japanese Prime Minister Shinzo Abe is close to naming his nominee for governor of the Bank of Japan, and that Toshiro Muto is the leading candidate for the job.
Muto is seen as a conservative reformer, and thus may be less likely to embark on an ultra-radical policy easing which markets have been expecting from the BOJ as policymakers try to reflate the economy.
"Muto is considered that he would only follow traditional ways such as expanding asset purchase programs. It would merely be an 'enhanced version of the conventional way'," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
"Investors see that it would be difficult to meet the (BOJ's) 2 percent inflation target without drastic easing. We cannot picture Muto going bold like buying foreign funds which could accelerate the yen's weakness."
Other market analysts agreed.
"It soured the mood, and some started dumping futures contracts," said Hiroichi Nishi, an assistant general manager at SMBC Nikko Securities.
The broader Topix dropped 1.3 percent to 942.41, with 4.51 billion shares changing hands, similar to last week's average daily volume of 4.65 billion shares.
Financials that have gained from the rally lost ground, with Mizuho Financial Group Inc (8411.T) falling 5.8 percent as the top-traded share by turnover on the main board. Mitsubishi UFJ Financial Group (8306.T) slipped 2.9 percent.
Automakers, whose share prices had jumped on expectations of higher overseas revenue due to the yen's weakness, also fell as some investors thought the one-way bet on the yen against the dollar and euro was losing momentum.
Toyota Motor Corp (7203.T) dropped 1.9 percent and Honda Motor Co Ltd (7267.T) shed 1.6 percent.
Analysts said that investors focus is again worries over the euro-zone economy, as economic output in the euro zone fell by 0.6 percent in the fourth quarter. Germany contracted by 0.6 percent, marking its worst performance since the global financial crisis was raging in 2009.
(Additional reporting by Sophie Knight and Tomo Uetake; Editing by Richard Borsuk)