By Myra P. Saefong

Japanese shares traded on a mixed note Monday but analysts expect the nation's stock market to head much lower in the coming months as strength in the yen continues to put a damper on demand and dividend payouts.

"The combination of the worse than-expected jobs report from the U.S. and continued strength of the yen will place heavy pressure on Japanese stocks," said Tony Sagami, editor of Asia Stock Alert.

"The path of least resistance for the Nikkei 225 is going to be down -- way down," he said. "This is the time to be a seller."

The benchmark Nikkei 225 Average peaked above 10,700 on Aug. 31, its strongest intraday level since early October of last year, according to data from FactSet Research, but the index has since fallen back below the key 10,000 level. By the end of morning trading Monday, the index was at 9,736.63, up 0.05%.

"The Nikkei had been up about 45% from the March lows to about 10,500, but definitely was stuck for the last few weeks until turning down sharply in the last week," said Richard Hastings, consumer strategist at Global Hunter Securities.

The broader Topix has followed a similar pattern, reaching a more than 10-month high above 980 in late August only to slip to 871.78 Monday, down 0.3%.

Exporter shares were among the bigger losers amid overall strength in the yen, with Nikon Corp. down 4.5%, Mazda Motor (7261.TO) losing 4.6% and Sony Corp. [s: (SNE) down 1.2% in Tokyo.

U.S. shares fell Friday following news that the nation's economy shed a worse-than-expected 263,000 jobs in September, putting pressure on most major Asian markets Monday.

South Korea's Kospi dropped 1.4%, New Zealand's NZSX 50 fell by 0.2% and Taiwan's Taiex edged 0.4% lower. But Hong Kong's Hang Seng was up 0.2% and Australia's S&P/ASX 200 was up 0.3%. Trading in China remained closed through Oct. 8 for a local holiday.

Paper weight

Strength in the Japanese yen against the U.S. dollar has weighed on the export sector in Japan and that's not likely to end anytime soon, according to some analysts.

"If the JPY [Japanese yen] remains below 90 for much longer, then the Nikkei could be looking at the 9,250 to 9,500 range very soon," said Hastings. "If the strong JPY situation is not easily resolved, and it fails to weaken into the 95 to 100 level soon, then further declines in the Nikkei are logical."

The U.S. dollar gained some ground Friday against the Japanese yen though moved lower against most of the high-yielding currencies, said Kathy Lien, director of currency research at GFT, in a note to clients.

In recent dealings, one U.S. dollar bought 89.79 yen, up from 89.66 yen late Friday in New York.

"The sharp gains in the yen are starting to show damaging results," said Lien. "Toyota is holding on for dear life as it expects to report a second-consecutive annual loss."

Shares of Toyota (TM) were up a modest 0.3% Monday morning but they're still trading near their lowest level since mid-July.

"Fiscal and low-interest rate policy moves by both Japan and the U.S. have reduced the downside risks in the economy," Naoki Kamiyama, a chief strategist at Deutsche Bank, wrote in a research note Monday.

But "tighter bank regulations and America's evident weak-dollar policy are not favorable developments for Japanese stocks," he said.

Given all that, he expects Japan's Topix to see a short-term correction target of around 850.

"Margins and [earnings-per-share] levels are looking more secure for FY3/10 [the fiscal year ending in March 2010], but we anticipate only a modest recovery in sales in FY3/11-3/12," he said.

Payout pain

Adding to the likelihood of further losses for Japanese shares, a Nikkei survey showed that dividend payouts for the April-September fiscal half are set to fall by some 1 trillion yen ($11.1 billion), or 34%, on the year.

The Nikkei survey, which collected data from 1,863 firms, excluding start ups, showed planned dividend payments at a total of 1.94 trillion yen, compared with 2.93 trillion yen a year earlier.

The dividend cuts were prevalent among steelmakers, auto industry firms and electronics manufacturers, the Japanese daily business newspaper reported Monday.

The larger dividend cuts also came from companies projecting net losses for the first half, which include Hitachi Ltd. , Toshiba and Mitsubishi Electric , the newspaper said.

And with more than 20% of stocks in the hands of retail investors, the decrease in dividends may also continue to hurt consumer spending, Nikkei said.