The yen wilted against the dollar and Japanese government bonds (JGBs) rose to a 3-week high after the Bank of Japan's June tankan survey showed business sentiment was holding steady, generally matching forecasts and underlining the view that the central bank will raise rates only gradually.
Gold tiptoed higher, encouraged by inflation worries as oil prices rose.
Wall Street has been mired in concerns about the subprime mortgage market, with those worries mounting after news of a probe into two Bear Stearns Cos hedge funds heavily invested in the risky sector.
Ahead of the weekend the Dow Jones industrial average fell 0.1 percent, while the Nasdaq Composite Index dropped 0.2 percent.
The lacklustre mood spilled over into Asian stocks, with Japan's Nikkei average down 0.1 percent at 18,120.62 by the midsession. The benchmark was weighed down by a 1.7 percent fall in department store chain Takashimaya following news of a 12 percent fall in quarterly operating profit.
Some analysts were sanguine.
''This is really just a small correction as investors are a bit wary of pushing the Nikkei much further above the 18,000 mark,'' said Ken Masuda, a senior equities dealer at Shinko Securities.
In South Korea, Seoul's KOSPI was 0.3 percent higher, boosted by gains in flat screen maker LG.Philips LCD as investors wagered its quarterly results will be robust.
Elsewhere Taiwan, Hong Kong, and Singapore posted losses.
Australia's S&P/ASX 200 index was 0.1 percent lower, although modest gains in energy companies like Woodside helped cushion the fall.
''What we need to give the local market a bit of fuel is a good reporting season,'' said Greg Goodsell, equity strategist at ABN AMRO.
TANKAN IN LINE Japanese government bond futures rose to a three-week high after the June tankan survey generally matched forecasts.
(Click on for tankan highlights) The tankan results came after Friday's soft reading on Tokyo consumer prices helped beef up expectations the BOJ would stick to a gradual pace of lifting interest rates and dispelled talk of a rate hike this month.
The BOJ will hold a policy meeting next week.
By 0215 GMT September futures rose 0.06 points to 132.08,, having earlier climbed to their highest level since early June.
The benchmark 10-year yield eased 1 basis point to 1.860 percent.
Dealers said a buoyant Treasuries market also lifted JGB sentiment.
In the currency market, the dollar rose as high as 123.28 yen against the yen on electronic trading platform EBS following the release of the tankan.
After the initial reaction it slipped back to 123.18 yen, still slightly up from around 123.15 yen in late New York trade on Friday.
The euro traded at 166.67 yen staying within striking distance of the 166.94 all-time high yen hit last week.
London Brent crude slipped 21 cents but remained above dollars on concerns over falling gasoline and crude stocks in key regions of the United States.
Spot gold traded at around 0 an ounce.
REUTERS SKB KP0816