TOKYO, Japan (AFP) — Mazda on Wednesday said it had returned to profitability but reduced its annual sales forecast, blaming a Tokyo-Beijing territorial spat that has sparked a boycott of many Japanese exports.

Japan’s fifth-biggest automaker said it logged a 5.74 billion yen (US$71.4 million) net profit in its fiscal first-half, reversing a 39.88 billion yen net loss a year ago, largely from cost cuts and a more popular product mix.

But it warned sales for the fiscal year to March would be 2.17 trillion yen, down from an earlier 2.2 trillion yen estimate, while trimming its operating profit outlook to 25.0 billion yen, from 30 billion yen.

“We have changed the forecasts for net sales and operating income mainly due to the decrease in sales volume in China,” it said in a statement.

Mazda lost about US$1.3 billion in its previous fiscal year as it took a double hit from the strong yen and falling demand in key developed markets.

Demand for Japanese cars in China, the world’s biggest vehicle market, have plunged as consumers protest against Japan’s nationalisation last month of a disputed East China Sea island chain.

Violent rallies across China have also dug into the nations’ trade ties worth about US$340 billion annually, with automakers and airlines particularly stung by the spat.

Japan’s top three automakers — Toyota, Nissan, and Honda — have all reported plunging September sales in China. 

Civic and Accord-maker Honda said this week that falling China sales would help drag its full-year profit down by 20 per cent from earlier forecasts.