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Stocks

How cabinet approval in Japan tells foreigners to sell shares

When rating falls below 60%, institutional investors bug out

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The government-own land in Osaka sold to a private school at a suspiciously large discount.   © Kyodo

TOKYO -- Foreign investors have grown less enthusiastic about Japanese stocks as negative news flows from Japan Inc.

A stock trader at a major Japanese brokerage thinks pension funds and other foreign investors who have large Japanese holdings are particularly concerned about Japanese equities.

Scandalous reports -- including one on the sale of government-owned land in Osaka to a private school at a suspiciously large discount -- abound in Japanese media. The news surfaced last month. Meanwhile, Toshiba is in crisis following a major account-fudging scandal. And the education ministry has raised the public's eyebrows by helping officials who retire from the ministry land jobs at schools and universities.

Investors are worried that, should another scandal come to light, be it in politics or business, it may touch off a series of further revelations -- as has been the case in the past.

This happened in 2014, when a series of political funds scandals involving cabinet ministers made headlines. In 2011, Daio Paper was found to be dishing out huge amounts in illegitimate loans to its former chairman. Olympus' high-profile window-dressing scandal also broke that year.

Foreign investors' net selling of Japanese shares reached 72.7 billion yen ($636 million) in the trading week to Feb. 24, bringing the total figure so far this year to 220 billion yen.

According to joint research by Nikkei and TV Tokyo, foreign investors' buying of Japanese stocks tends to start slowing when the approval rating of Prime Minister Shinzo Abe's cabinet falls below 60%.

Foreign investors' buying exceeded their selling by 15 trillion yen in 2013. That year, the second Abe cabinet was enjoying high popularity and an approval rating that averaged 65% for the year (it touched 76% in April).

In 2014, the rating dropped to an average of 52%, affected by the late-2013 passage of the state secrets law and by a flurry of political funds scandals involving cabinet ministers. Foreign investors' net buying that year fell sharply from the previous year to 850 billion yen.

The cabinet's approval rating averaged 46% after Abe pushed through controversial legislation that relaxed restrictions on what the Self-Defense Forces can do overseas. Although hopes for enhanced corporate governance reforms boosted foreign investor buying to a degree, the momentum did not last. For the year, these investors sold a net 250 billion yen worth of Japanese shares.

Their net selling reached 3.6 trillion yen in 2016, when the cabinet's approval rating averaged 54%.

Cabinet approval hit a low of 46% last summer, then rebounded to 66% at the end January. On Monday, it sagged to 60% -- the sell line -- partly reflecting the public's wariness of legislation ostensibly meant to stem any budding terror threat ahead of the 2020 Tokyo Olympics. Critics say the proposed law is so vague it could give authorities the power to trample civil liberties and still grassroots opposition.

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