Japan stocks reach their highest since April 2010

Elsewhere, investors sat on the sidelines or sold shares to rake in profits ahead of the release of U.S. retail sales for December and fourth-quarter corporate earnings. Investors will be scrutinizing company revenues to assess whether the drawn-out “fiscal cliff” debate had an impact on consumer spending. A series of tax hikes and spending cuts, due to come into effect Jan. 1, were only averted by a last-minute deal.

Britain's FTSE 100 fell 0.1 percent to 6,102.18. Germany's DAX fell 0.1 percent to 7,719.62. France's CAC-40 was nearly unchanged at 3,708.27. Wall Street was set for a weak open. Dow Jones futures fell 0.1 percent to 13,416. S&P 500 futures also lost ground, falling 0.2 percent to 1,461.20.

In Tokyo, the Nikkei 225 rose 0.7 percent to finish at 10,879.08, its highest close in nearly three years, after Masaaki Shirakawa, governor of Japan's central bank, pledged to take action to combat the country's deflationary slump.

In a boost for Japanese exporters, the yen has slid against the U.S. dollar and euro since the Liberal Democratic Party returned to power in national elections last month. Its leader, Shinzo Abe, has been lobbying the central bank for aggressive action to end Japan's years of deflation, demanding that it meet an inflation target of about 2 percent.

In announcing a 20-trillion-yen (US$225 billion) economic stimulus package last Friday, Abe reiterated his calls for the Bank of Japan to do more to boost growth.

Elsewhere in Asia, Australia's S&P/ASX 200 fell 0.1 percent to 4,716.60 and South Korea's KOSPI dropped 1.1 percent to 1,986. Hong Kong's Hang Seng shed 0.1 percent to 23,381.51.

“It's just profit-taking because the index is already overbought and many stocks are overbought,” said Kwong Man Bun, chief operating officer at KGI Securities in Hong Kong.

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