By Tetsushi Kajimoto and Izumi Nakagawa
TOKYO (Reuters) - Nearly three quarters of Japanese manufacturers are worried China's economic slowdown and the financial market turmoil it has triggered will hit their profits this year, a Reuters poll showed.
Respondents were concerned about weakening demand in China hurting sales of their products, an appreciation in the safe-haven yen rendering exports less competitive, and a potential drop-off in Chinese tourism to Japan - one of the country's few growth industries.
"We have many China-related matters in our budget and we're seeing postponements and cancellations," wrote a corporate manager at a ceramics company.
China is Japan's largest trading partner and a key market for a wide swathe of firms. Nissan Motor Co (T:7201) counts on the world's second-largest economy for about one-fifth of its sales volume.
The monthly Reuters Corporate survey, conducted Aug. 31-Sept. 11, showed 72 percent of Japanese manufacturers were worried about the impact of China woes on earnings in the financial year to end-March. Auto and electronics firms were particularly anxious, with more than 80 percent expressing concern.
For Japan Inc as a whole, the proportion was 56 percent, with 41 percent of non-manufacturers saying they were apprehensive.
The effects of slowing China demand, which in turn has triggered a steep sell-off in equities and a devaluation of the yuan, is increasingly being felt throughout its economy.
"Infrastructure-related demand is hitting new lows. On top of that, starting with the electronics parts sector, we are really feeling a slowdown in a wide range of industries," wrote a manager at a rubber company.
The survey, conducted for Reuters by Nikkei Research, polled 516 big and medium-sized firms, which responded on condition of anonymity. Around 260 answered questions related to China.
CAPEX PLANS INTACT
The survey also showed that just over one fifth of firms felt China woes have already put their overall business plans under pressure, though 74 percent said there had been no particular impact as yet.
Asked about their overall earnings outlook for the July-September quarter compared with initial plans, nearly a quarter of firms said they were undershooting. Around 60 percent were on track while 15 percent said they were overshooting.
"The impact from China's slowdown has not yet played out in corporate earnings, but risks are tilted to the downside," said Taro Saito, director of economic research at NLI Research Institute, who reviewed the results.
"If weakness in domestic and external demand persists, that could heighten the risk of profits undershooting, which would delay capital spending plans," he said.
Japan Inc's business investment plans are forecast to rise 9.3 percent this fiscal year - the fastest pace seen in a decade - according to a central bank survey and representing one of the few bright spots for an economy that shrunk in the latest quarter.
The Reuters Corporate Survey showed 84 percent of companies were set to implement capital expenditure as planned in the second half of the financial year, bolstering the Bank of Japan's view that the economy is on track for a gradual recovery.
Some 13 percent of firms said they were taking a wait-and-see stance for some capital spending plans while only 3 percent said they had decided on postponements.
On inflation expectations, the survey showed that 55 percent of firms expect consumer prices to climb 1 percent or more over the next 12 months. Core consumer price rises came to halt in July compared to a year earlier due to sharp drops in oil prices.
The central bank has made escaping 15 years of grinding deflation one of its highest priorities and has set a goal of reaching 2 percent inflation by September next year.