By Mari Terawaki
TOKYO, Sept 17 (Reuters) - Around 40 percent of Japan's biggest companies expect to undershoot their second-half earnings forecasts, citing sluggish demand, fierce price competition and high raw material costs, a Reuters survey showed on Thursday.
While the global economy is increasingly showing signs of life, Japanese production levels, exports and capital spending are still very weak given the unprecedented plunge in worldwide trade earlier this year.
Service sector industries are suffering as consumers rein in spending due to falling wages and a rising jobless rate.
"Orders still haven't recovered," said an electronics maker -- the reply typical of many in the survey.
Forty-two percent of respondents said they expect to fall short of their second-half forecasts, while 41 percent said they expect no major changes. The remaining 17 percent said they expect to overshoot estimates.
The poll, conducted Aug. 26 to Sept. 11, surveyed 400 companies, of which 56 percent gave valid replies to the question on their earnings outlook.
Of these, only a few companies cited a strong yen as a reason for missing their second-half forecasts.
The companies polled are assuming a median dollar rate of 95 yen for their second-half earnings, which for most of them is the October to March period.
The yen strengthened during the survey period from 94.5 yen to 90 yen. It hit a seven-month high against the dollar of 90.12 yen on Wednesday, boding ill for exporters since a stronger yen eats into their earnings when repatriated.
The respondents see the euro averaging 130 yen, compared with around 134 yen on Thursday.
The Reuters survey showed both electrical machinery makers and transport equipment manufacturers had a median dollar/yen forecast rate of 95 yen.
For euro/yen, electrical machinery makers had a median rate of 131 yen and the median rate of transport equipment manufacturers was 135 yen.
The dollar/yen rate assumption is in line with the average forecast of 94.77 yen for the October-March period among large manufacturers in the Bank of Japan's tankan business survey released in early July.
The respondents forecast the benchmark Nikkei average would stand at 10,555 at the end of October, 284 points above Wednesday's close. (Writing by Colin Parrott; Editing by Edwina Gibbs)