Japanese shares closed nearly flat on Wednesday, ending just below a three-month high hit earlier this week, as investors paused to take stock of the market that rose on hopes of a swift recovery from a coronavirus-led downturn.
The Nikkei share average <.N225> ended up 0.15% at 23,124.95, while the broader Topix lost 0.23% to 1,624.71.
"The market has been recovering but many people are concerned about the outlook. Given the current stretched valuations, we could see a correction in the near term," said Masato Futoi, deputy general manager of institutional sales at Tokai Tokyo Securities.
With the Topix trading at 16 times expected earnings over the next 12 months, the highest level in seven years, some Japanese players were taking profits ahead of the U.S. Federal Reserve's policy meeting later in the day.
Takara Bio rose 17.5%, by daily limit, to a seven-year high after the Japanese biotechnology firm said it has developed a method to speed up PCR tests for COVID-19.
The parent company Takara Holdings was the best performer on the Nikkei, with gains of 9.9%.
Growth-oriented shares, which have high valuations because of strong expectations, are making a comeback, with the Topix Growth index rising 0.2%. Topix value shed 0.7%.
Among growth shares, Shin-Etsu Chemical rose 2.2%, Astellas Pharma gained 1.9% and Recruit Holdings added 1.7%, while Sony rose 1.3%.
Shares in the Tokyo Stock Exchange's Mothers start-up market also outperformed, with its index rising 1.5% after hitting a 1-1/2-year high.
On the other hand, many of value shares - those with relatively cheap valuations - underperformed following stellar gains in the past couple of weeks.
Constructors <.ICONS.T> fell 1.7% with Shimizu Corp dropping 4.4%, Taisei Corp losing 3.8% and Obayashi Corp shedding 4.9%.
Steelmakers <.ISTEL.T> dropped 2.0%, while insurance companies <.IINSU.T> lost 1.5%.
(Reporting by Hideyuki Sano; Editing by Shailesh Kuber)