"The new Cabinet lineup offers no fresh incentive to trade on, as it lacks any signs that the government will be prompted to move ahead with economical measures," said Takafumi Horiuchi, strategist at Mizuho Securities C.

Analysts said that the new Cabinet's ability to get the nation back on a stable economic footing remained in question as the ruling Democratic Party of Japan may still be shunned by its opposition bloc in upcoming parliamentary debates and be unable to secure the passage of a controversial tax hike bill through the opposition-controlled upper house of parliament.

They added that the possibility existed that internal rifts within the DPJ could lead to a party meltdown or the current impasse over the tax issue may force Noda to dissolve parliament's lower house and call snap election.

The market's focus, noted analysts here, is not on domestic issues and particularly not on Japan's mercurial political scene which the public has learnt to take in its stride, but on external factors, the most important of which is now U.S. corporate earnings reports -- particularly its major banks who begin reporting later Friday.

"The Nikkei is lagging behind global markets in a sense that investors are unwilling to step in as there are no particular factors to prompt buying," said Ryota Sakagami, chief strategist of equity research at SMBC Nikko Securities.

"In this environment, the U.S. earnings may provide some sense of clarity on the eurozone's impact."

Japanese automakers gained as the euro found traction today and Honda Motor Co. climbed 3.4 percent to 2,553 yen, Toyota Motor Co. gained 1.6 percent and Nissan Motor Co. rose 2.5 percent.

Oil exploration giant Inpex Corp. was also among Friday's notable advancers, rising 1.2 percent to 516,000 yen, following news of a joint project in Australia with French counterpart Total SA.

Machinery makers also found favor on new data showing orders rose in December from a year earlier and Komatsu leapt 4.1 percent to 1,979 yen and Hitachi Construction Machinery jumped 3.8 percent to 1,371 yen.

Pacific Metals gaining 4.5 percent to 375 yen and Bridgestone Corp. advancing 1.4 percent to 1,733 yen, capped off an encouraging day for the two firms, both highlighted by Goldman Sachs as being stocks that are likely to rise the most this year.

Trading volume on Friday rose to 1.69 billion shares on the Tokyo Exchange's First Section, up from Thursday's volume of 1.38 billion shares, with advancing issues outnumbering declining ones by 1,242 to 309.