Europe's two-year old sovereign debt crisis, which has left Greece teetering on the edge of default, has taken a heavy toll on Japanese corporate sentiment as exporters struggle with a strong yen and slower growth in China.

When manufacturers were asked if they are considering changing business plans in Europe, 31 percent of those responding said they are in the process of doing so or have already made changes. Of those firms, 90 percent said they could scale back operations or have already done so.

Many manufacturers were also looking to shrink operations in China and North America in favor of expanding in other Asian countries to tap demand for their goods, the survey showed.

Euro zone finance ministers will decide on Monday what terms of a Greek debt restructuring they are ready to accept as part of a second bailout package for Athens after negotiators for private creditors said they could not improve their offer.

Resolving the issue of a Greek debt swap is key to putting Athens' debt on a sustainable path and avoiding a chaotic default that could threaten the whole currency bloc.

The poll, taken January 5-17, surveyed 400 big firms, of which 247 responded. The questions were part of the Reuters tankan for January, which was published on Friday.

The tankan, which is closely correlated with the Bank of Japan's quarterly tankan survey of business sentiment, showed manufacturers remained pessimistic about business conditions for the second straight month in January.

Manufacturers showed concern about China's growth prospects, with 50 percent saying they could change their business strategy as China's red-hot growth cools. Of those firms, 65 percent say they could shrink operations.

China's economy is expanding at its weakest pace in 2-1/2 years, with sequentially softer annual growth in the last four quarters seen spilling over into the first three months of 2012, leading many analysts to expect the worst full-year growth in a decade.

The poll suggested half of Japanese manufacturers are taking another look at Asian markets excluding China, and 52 percent of those firm want to expand in an attempt to reduce dependence on the Chinese market.

Only 24 percent of manufacturers were considering changing their North American strategy, but 61 percent of those firms said they are likely to scale back.

Manufacturers were pessimistic on the Japanese market. One in three are reconsidering domestic business plans. Of those, 78 percent said they are likely to shrink operations.

Non-manufacturers, which include construction firms and retailers, were more positive on the domestic economy as they are likely to benefit from reconstruction following last year's record earthquake and the worst nuclear crisis in 25 years.

The survey showed that 75 percent of non-manufacturers are looking to change their domestic strategy, with 60 percent of those firms leaning toward expansion.

When manufacturers and non-manufacturers are combined, almost 70 percent say the global economy is the biggest risk to their outlook, followed by 57 percent who said they are worried about the rising yen.

(Reporting by Izumi Nakagawa; Writing by Stanley White; Editing by Michael Watson)

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