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Stocks

Market Scramble: Key legislation stalled as school scandal engrosses Diet

Anti-overtime, home-sharing bills may go into cold storage

TOKYO -- Spring has come to Japan, but legislation on changing the country's culture of long working hours and legalizing private room rentals may get left out in the cold as the Diet is absorbed in a scandal linked to Prime Minister Shinzo Abe.

The situation is making investors grow bearish on stocks that would benefit from passage of those bills.

While in the U.S., congressional Republicans are seriously divided on a plan to repeal former President Barack Obama's health care law, Japan's Diet is spending much time attempting to unravel the scandal centered on nationalist school operator Moritomo Gakuen. Even after sworn testimony Thursday by Yasunori Kagoike, the head of the Osaka organization, the truth seems yet to be revealed. Opposition parties are focusing on Akie Abe, the prime minister's wife, who is suspected of involvement in a sweetheart land deal and who Kagoike testified gave a cash donation to Moritomo Gakuen. The clash between the opposition and the ruling Liberal Democratic Party over the scandal is expected to heat up.

This scenario makes it uncertain when the Diet will act on the bills on overhauling the overtime culture and lifting the ban on home-sharing. The concern was vividly played out in the market Thursday.

Companies expected to get a boost from the legislation declined, with staffing agency Fullcast Holdings sliding 1.9% and job search engine Dip taking a 1.7% dip. Apartment rental company Ambition fell 1.6%, and real estate concern Dear Life slipped 0.8%. The benchmark Nikkei Stock Average edged up 0.2% to 19,085.31.

Abe's political position had remained stable until now even as the rise of populism shook the U.S. and Europe, and such stability has drawn overseas investors. But "once the 'political premium' fades, foreigners' buying is certain to dwindle," warned Tomohiro Okawa, chief strategist at P.S. Oskar Group.

Japanese investors are also growing nervous. Ryosuke Matsui, portfolio manager of a small- and midcap fund at Fidelity, said he has "increased cash holdings to the maximum allowed under the internal rules." Only a few players anticipate a market sell-off, but optimism about U.S. and Japanese policies -- which had been growing -- is now on the decline.

On March 13, the New York market flashed a Hindenburg omen, an indicator of a potential collapse named after the notorious 1937 crash of a German airship. The warning refers to a combination of several market events, such as the numbers of 52-week highs and lows and the moving average. An occurrence of this signal is said to predict a market correction greater than 5%.

After this omen was triggered Dec. 2, 2015, a correction began one month later at the start of 2016.

Hopes for new legislation had supported the market until now. But "over the next month or so, we need to watch out for a decline on Wall Street that could spread to other parts of the world," said Makoto Onoda at eWarrant Japan Securities.

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