Japan's Nikkei average dipped 0.5 percent on Friday, with Canon (7751.T) and other exporters hurt by a stronger yen, but falls were limited by continued optimism that economic fundamentals are improving. Analysts said markets were not moved by the Bank of Japan upgrading its assessment of the economy or a newspaper report about General Motors' (GM.N) possible bankruptcy filing, as these had largely been factored in. Canon fell 2.2 percent to 3,160 yen and Sony Corp (6758.T) slipped 2 percent to 2,450 yen. Toyota Motor Corp (7203.T) retreated 2.2 percent to 3,570 yen. "The only trading factor in Japan for now is a stronger yen. Worries about the financial system in Japan are not as grave as those in America," said Masaru Hamasaki, a senior strategist at Toyota Asset Management. "The market has already neared a ceiling, though, based on hopes the economy will improve in the second half of this year as economic steps will likely start having an impact. Until that really happens and the economy improves even further, the ceiling will probably stay around 9,500 for a while." The benchmark Nikkei .N225 fell 41.75 points to 9,222.40 after earlier turning positive briefly. The broader Topix slipped 0.6 percent to 875.89. The dollar fell as low as 93.86 yen on trading platform EBS, its lowest since mid-March but was later trading around 94 yen. A stronger yen eats into exporters' profits when they are repatriated. The dollar fell as worries about U.S. debt levels grew after Standard & Poor's warned there was a 1 in 3 chance the U.K. could lose its precious triple-A credit rating because of the danger government debt may soar near 100 percent of GDP. The move raised fears that the United States, with its increasing budget deficit and weakened economy, could face the same situation, sending the dollar and Wall Street lower. "We're seeing some consolidation after the markets rose a bit too fast. What's been happening this week globally is that markets have gotten a bit of a reality check on the state of the overall economy," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments. "The Nikkei trend is unlikely to change unless the dollar really falls against the yen, and even the 93-94 yen level might still be all right. But a fall down to 90 yen could be very bad." But support came from some high tech shares such as industrial robot maker Fanuc (6954.T), which rose on short covering, though the sector was mixed overall. Fanuc rose 0.4 percent to 7,540 yen and Honda Motor Co (7267.T) gained 3 percent to 2,725 yen. Retailers also gained, with Isetan Mitsukoshi (3099.T) rising 2.1 percent to 831 yen. Defensive shares also climbed, with Nippon Meat Packers (2282.T) gaining 3.3 percent to 1,116 yen.

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