TOKYO, May 22 (Reuters) - Japanese shares edged lower on Tuesday from 3 1/2-month highs the previous day, with financial shares leading declines as investors booked profits on signs of an apparent peak in U.S. bond yields.
The Nikkei ended 0.2 percent lower at 22,960.34. The Topix also fell 0.2 percent, to 1,809.57, weighed down by financial shares.
Trading volume was thin, with only 1.28 billion shares changing hands, the fewest since early April.
Helping Tokyo markets rise on Monday was the reduction of fears of a trade war between China and the United States, which was a key factor behind Wall Street's solid gains overnight.
With Japanese companies' full-year earnings releases priced in by the market, investors are waiting for new catalysts, analysts said.
"The Nikkei touched a psychologically important level of 23,000 thanks partly to relief about earnings," said Takuya Takahashi, a strategist at Daiwa Securities.
Takahashi said that companies' annual forecasts are based on conservative dollar-yen levels around 105, so as long as the current exchange rate for the greenback is stronger, there are hopes firms will eventually revise up their earnings estimates.
"There isn't much concern about earnings for now, but investors are not chasing the market higher before they are convinced that companies will do better than expected. They want to see how their first-quarter performances will be," he said.
An index for Japanese insurance companies extended its fall this week to 4.0 percent, as U.S. bond yields have slipped from near seven-year highs. Higher U.S. yields were seen as boosting investment returns for Japanese insurers.
Investors locked in gains in the sector, one of the best performers since March as trade war worries had engulfed exporters and others vulnerable to tariff threats.
T&D Holdings shed 2.7 percent and MS&AD Insurance declined 2.8 percent.
Banks shed 0.3 percent, with MUFG falling 0.2 percent.
Defensive shares also succumbed to profit-taking, with food companies and retailers falling 0.4 percent and 0.6 percent, respectively. (Reporting by Hideyuki Sano and Ayai Tomisawa; Editing by Richard Borsuk)