Investors sold stocks in Japan, with Prime Minister Shinzo Abe set to dissolve the lower house Friday in preparation for an election next month.

The Nikkei Stock Average was down 0.5% at 17215.02 as the U.S. dollar held roughly flat.

The dollar traded at 118.12 Japanese yen, from Yen118.23 late Thursday in New York. A weaker dollar weighs on Japanese exporters, who earn in dollars overseas and pay costs in the local currency at home.

"The market continues to show all the signs of being technically overbought and potentially ready for a pullback," said Masayuki Doshida, a senior market analyst at Rakuten Securities.

The Nikkei has gained 4.7% month to date, spurred by a surprise monetary stimulus announcement by Japan at the end of October, the delay of a tax hike originally planned for next year and a weak local currency. The U.S. dollar rose to Yen118.72 Thursday, its highest since August 2007.

Tokyo was headed for a 1.8% loss this week, however, as investors assess how the government will address a flagging economy, now in a technical recession. Exports rose 9.6% from a year earlier in October, offering renewed hope that the yen's continued slide will boost Japan's sales of goods abroad. Prime Minister Abe is set to dissolve the lower house of parliament Friday for an election next month following his decision to postpone next year's sales tax increase.

Australia's S&P/ASX 200 was flat and Korea's Kospi was up 0.3%.

Write to Chao Deng at Chao.Deng@wsj.com

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