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Shares in Japan fell Thursday, tracking regional losses earlier this week, with auto makers leading the decline as the potential fallout of a scandal at Volkswagen AG spreads concern to other firms.

The Nikkei Stock Average was down 1.5% as trading resumed after a three-day holiday. Reports that Volkswagen cheated on U.S. exhaust-emissions tests could signal more stringent environmental testing for other auto makers, a factor that has pressured shares early Thursday. Shares of Mazda Motor Corp. were down 7.3%, Mitsubishi Motors Corp. lost 4.3% and auto-parts maker Denso Corp. fell 4.3%.

The losses follow the resignation of Volkswagen's chief executive Martin Winterkorn Wednesday, and a calamitous few days for Europe's largest auto maker after the U.S. Environmental Protection Agency on Friday disclosed that the company used software on some VW and Audi diesel-powered cars to manipulate the results of routine emissions tests.

While one of Volkswagen's direct rivals in Japan, Toyota Motor Corp., has outperformed the broader market, it was still down 1.2%.

"Toyota is competing with the No. 1 [car marker in the global market]. Some investors must have sold Volkswagen shares, putting some of the money in Toyota," said Hideyuki Ishiguro, a senior strategist at Okasan Securities.

Losses in Japan also follow dismal Chinese manufacturing data from Wednesday, which fell to a 6½ -year low, stoking further worries about the ripple effects of its slowing economy.

Elsewhere, shares mostly rebounded. Australia's S&P ASX 200 was up 1.1%, after hitting a two-year low on Wednesday. The Hang Seng Index was flat while the Shanghai Composite Index gained 0.3%. South Korea's Kospi was up 0.5%.

Shares in the U.S. ended slightly lower overnight as economic news from Europe helped offset the weak Chinese data.

Investors are also looking to a coming speech by Federal Reserve Chairwoman Janet Yellen on Thursday at the University of Massachusetts-Amherst for clues about the probability of a rise in interest rates later this year. The speech comes a mere week after the bank decided to keep interest rates unchanged.

Morgan Stanley notes that in each of her three speeches earlier this year—the most recent being July 10—Ms. Yellen stated that if the economy improved as she expected, an increase to the policy rate would be appropriate "at some point this year." If that key phrase is missing Thursday, it could lower expectations for 2015 liftoff.

Uncertainty about the timing of the Fed's rate increase has added to worries about China's slowdown, causing volatility in stocks and currencies in the region. Earlier this week, a strengthening U.S. dollar pressured Asian currencies, which continued to fall Wednesday after the poor Chinese economic reading. The Indonesian rupiah, for example, reached a fresh 17-year low.

On Thursday, the Australian dollar was up 0.1% against the U.S. dollar to just above $0.70, a level that it had breached earlier this month for the first time in years.

Prices for brent crude oil were up 0.4% in Asia trade after U.S. oil prices declined more than 4% overnight.

Gold was up 0.1% at $1,130.80 a troy ounce.

Paul Vigna and Kosaku Narioka contributed to this article.

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

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(END) Dow Jones Newswires

September 23, 2015 22:15 ET (02:15 GMT)

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