Japanese stocks fell as some of the best-performing shares this year led losses amid expectations domestic pension funds will pare positions to rebalance their portfolios before the quarter ends.

The Nikkei 225 Stock Average declined 1.6% to 32,722.33 as of 11:30 a.m. in Tokyo, set to end a string of weekly gains that began in early April. The Topix fell 1.5% to 2,262.13. A gauge of trading companies pared its year-to-date gain to 41%, which is still the best performance among sub-indexes.

“Speculators are taking profit,” adding to selling pressure on stocks that have gained recently, said Shuji Hosoi, an analyst at Daiwa Securities Group Inc. “We are seeing pension funds and others selling for quarterly rebalancing as we approach month-end.”

Equity benchmarks reversed earlier gains after inflation data came out stronger than expected, backing the case for the Bank of Japan to tweak its ultra-loose monetary policy. The yen rose 0.1% against the greenback.

Three of the top five contributors to the Topix’s loss were trading houses. Toyota Motor Corp., which surged 13% last week buoyed by a briefing on its electric-vehicle strategy as well as its annual general meeting, dropped 2.2% Friday.

The rapid advance that drove Japanese stocks to a 33-year high a week ago has increased expectations that the nation’s Government Pension Investment Fund and its other domestic peers will need to trim equity holdings back to target levels as end of the quarter approaches.

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Foreign funds have been flowing into Japanese stocks on corporate efforts to boost shareholder returns, the nation’s delayed economic reopening and the central bank’s easy monetary policy. Foreign investors continued to buy cash equities in the week ended June 16, while they sold the largest amount of Japanese stock futures in three months.