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Japan's Nikkei share average fell to a seven-week low on Wednesday as investors feared a relentless selloff in Chinese shares could hurt Japanese companies relying on strong demand from China.
The Nikkei fell more than 2 per cent to as low as 19,907.51 points, its lowest level since mid-May, as equity prices around the world suffered from uncertainty over whether Greece will stay in the euro zone.
"Today is a 'China day'. This is going to affect the real economy. Chinese people who had made fortunes on stocks should have been spending a lot but that is likely to change," said Seiki Orimi, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
Companies with high exposure to China led the losses, with construction equipment makers Komatsu Ltd and Hitachi Construction Machinery falling 5.0 per cent and 3.4 per cent, respectively.
"The ripple effect from the market correction (in China's economy)has yet to show up," wrote Bank of America Merrill Lynch analysts in a note.
"We expect slower growth, poorer corporate earnings, and a higher risk of a financial crisis."
As concerns about Chinese economy hit commodity prices, trading houses, which have big commodities business, also tumbled.
Sumitomo Corp fell 4.2 per cent while Mitsubishi Corp 3.3 per cent. Itochu Corp fell 8.4 per cent, taking an extra hit from a Nikkei business daily article that its plan to buy a stake in Bosideng International Holdings was rejected by the Chinese apparel company's shareholders.
Other casualties included tourism-related shares, which have benefited from shopping sprees by a surging number of Chinese tourists visiting Japan. Department store operator Isetan Mitsukoshi fell 3.9 per cent.
As Japanese cosmetic products are popular among Chinese tourists, drug store operators and cosmetic companies were among the worst-hit.
Drug-store operator MatsumotoKiyoshi Holdings fell 4.6 per cent while cosmetics manufacturer Shiseido dropped 4.6 per cent.
Mainland Chinese shares fell sharply on Wednesday despite a series of measures that Beijing has rolled out nearly daily for the last two weeks to support share prices. The CSI 300 Index falling as much as 8 per cent at one point. It has lost more than 30 per cent from its seven-year peak hit in mid-June.
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