Tokyo stocks ended flat Thursday as a strong yen pared early gains that have driven Federal Reserve boss Janet Yellen's suggestion that US interest rates could rise gradually.
Japanese traders tracked a Wall Street record in the first few hours after Yellen told Congress the central bank would keep lifting rates as long as the US showed improvement, taking into account inflation remained below its two percent target.
Her remarks fuelled optimism that borrowing costs in the world's top economy would stay low for some time.
However, stocks reversed course in the afternoon as dealers moved out of the dollar, sending the yen higher, which in turn dragged on Japan's exporters.
The dollar was changing hands at 113.15 yen in Tokyo, little changed from New York, but well off the 113.50 yen levels seen earlier Wednesday in Asia.
"It's about weighing which will have a greater impact," said Masahiro Ichikawa, a senior strategist at Sumitomo Mitsui Asset Management.
"A cautious approach on rate hikes shouldn't be bad for the overall stock market, but since the yen can't really head lower, it'll be hard for investors to anticipate extra tailwinds from currency moves," he told Bloomberg News.
A strong yen erodes the profits of Japanese exporters and hits demand for their shares.
The benchmark Nikkei 225 index inched up 1.43 points to 20,099.81, while the Topix index of all first-section issues slipped 0.01 percent, or 0.23 points, to 1,619.11.
"With the upward trend in the dollar suppressed, investors may be inclined to wait for quarterly results starting in earnest next week," said Juichi Wako, a senior strategist at Nomura Holdings.
Toyota fell 0.24 percent to 6,210 yen while Nissan was off 0.26 percent at 1,145 yen.
Financials also lost ground as Mitsubishi UFJ slipped 1.53 percent to 727.1 yen and rival lender Sumitomo Mitsui was down 1.10 percent at 4,282 yen.
Troubled conglomerate Toshiba dropped 4.45 percent to 242.4 yen after it denied a news report that said its auditor will not sign off on long-delayed financial results.
Japan Tobacco eased 0.41 percent to 3,840 yen following news reports that it may buy Filipino cigarette maker Mighty Corp.