U.S. Vice President Kamala Harris hosts a roundtable discussion with Japanese business executives from companies in the semiconductor industry, at the Chief of Mission Residence, in Tokyo, Japan Sep.28, 2022. / Reuters/Leah Millis

TOKYO (Reuters) - More Japanese companies believe a Kamala Harris presidency in the U.S. would be better for their businesses than a second Donald Trump administration, a Reuters survey showed on Aug.15, reflecting the respondents concerns about protectionism and policy unpredictability.

The outcome of November's U.S. presidential election is being closely watched by countries around the world. But Japan is a close ally of Washington, with tens of thousands of U.S. troops stationed there, and its businesses would feel the impact of a renewed U.S.-China trade war since both are among its top trading partners.

Some 43 percent of Japanese firms said they preferred Harris in light of their corporate strategies and business plans while 8 percent picked Trump.

A total of 46 percent said either candidate would be fine, with the remaining 3 percent saying they preferred neither.

"There is a possibility that trade war, economic friction and security threats will be brought about under another Trump administration, forcing us to change our business strategy," a manager at a ceramics manufacturer wrote in the survey.

Japan's relations with the Trump administration were at times strained by his demands for more payments towards military assistance and by trade tensions.

With Harris, "we can expect current policies to be maintained by and large. That would give us better visibility into the future," an official at a chemicals firm said.

Asked what change will likely be necessary under a Trump administration, 34 percent said their foreign exchange strategy would need to be reviewed, while 28 percent said their supply chains would be realigned and 21 percent said they would reduce their China operations.

Trump has floated the idea of a 10 percent universal tariff on U.S. imports, which could disrupt international markets, and a tariff of at least 50 percent on Chinese goods.

Nikkei Research reached out to 506 companies from July 31 to Aug. 9 on behalf of Reuters for the survey, with 243 firms responding.

CHINA SLOWDOWN

Regardless of who wins the U.S. election, 13 percent of Japanese companies are considering reducing operations in China, while 3 percent are looking into expanding their businesses, with 47 percent planning to maintain their current exposure, the survey showed.

Among those thinking about paring down operations in China, 35 percent said they saw no prospects for economic recovery, 29 percent cited tough price competition and another 29 percent pointed to economic security risks as reasons to cut back.

China's economy grew much slower than expected in the second quarter and its exports rose at their slowest pace in three months in July, adding to concerns about the outlook for its vast manufacturing sector.

Major Japanese companies that have announced cutbacks in their China operations in recent months include Honda Motor and Nippon Steel.

The survey also showed 24 percent of respondents saw recent rounds of intervention in the foreign exchange market by Japanese authorities as appropriate, compared with 9 percent that found the moves inappropriate and 64 percent that believed they were unavoidable.

The yen kept falling earlier this year despite intervention in April and May, touching a 38-year low of 161.96 to the dollar on July.3. Japanese authorities are suspected to have stepped in again in mid-July to put a floor under the yen.

"The extreme weakness in the yen had to be corrected. It just couldn't be helped," an official at an electronics company said.

Asked if the Bank of Japan should raise interest rates to shore up the yen, 51 percent said such a step was allowed only when exchange rates fluctuated excessively, while 22 percent said they didn't support a monetary policy change aimed at affecting the foreign exchange market.

On expectations for the yen, 32 percent saw it trading in a range of 145 to 150 yen to the dollar at the end of the year, while 25 percent predicted the Japanese currency to be firmer at 140 to 145 yen, while 22 percent saw it trading between 150 to 155 yen.

During the period of the survey, the yen was volatile and touched its strongest level since the start of the year before reversing course. It has since continued to weaken.