Nikkei slips as stronger yen weighs, market lacks clear direction

TOKYO, May 27 (Reuters) - Japan's Nikkei share average dropped on Tuesday, pressured by a stronger yen that dampened sentiment, while most investors refrained from active trading amid a lack of clear market-moving catalysts.

The Nikkei .N225 was down 0.24% at 37,440.32 by the midday break. The broader Topix .TOPX held its ground at 2,752.87.

"With the U.S. markets closed on Monday, institutional investors stayed cautious and quiet. And it looked like only individual investors were trading small stocks," said Naoki Fujiwara, senior fund manager at Shinkin Asset Management.

"But the market reacted to the yen's gain against the dollar during the session," said Fujiwara.

The yen strengthened against the dollar following comments from Bank of Japan Governor Kazuo Ueda, which signalled the central bank's willingness to raise interest rates.

Governor Ueda said that the BOJ must remain vigilant to the risk that rising food prices could drive underlying inflation higher, noting that it is already close to the central bank's 2% target.

A stronger yen generally pressures exporter shares, as it diminishes the value of overseas earnings when converted back into Japanese currency.

Among individual stocks, chip-making equipment maker Tokyo Electron 8035.T fell 1.69% to drag the Nikkei the most. Uniqlo-brand owner Fast Retailing 9983.T lost 0.78% and toy maker Konami Group 9766.T slipped 1%.

Shares of staffing agency Recruit Holdings 6098.T rose 1.37%, while game maker Nintendo 7974.T also advanced, gaining 0.84%.

Drugstore operator Tsuruha Holdings 3391.T climbed 1.51% after shareholders approved its merger with Welcia Holdings 3141.T, despite opposition from U.K.-based fund Orbis Investment.

On the Tokyo Stock Exchange's prime market, 58% of the over 1,600 listed stocks advanced, 36% declined, and 5% remained unchanged.