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Confidence among Japanese manufacturers fell the most in at least four years because of surging commodity costs and waning demand for the country's cars and electronics.

Sentiment among manufacturers with more than 1 billion yen ($9.3 million) in capital was minus 15.1 points this quarter, the lowest since the Cabinet Office and Finance Ministry began compiling the data together in 2004. A negative number means pessimists outnumber optimists.

Stocks dropped and bonds rose after the survey also showed companies plan to cut spending on factories and equipment by 0.9 percent in the year ending March. The report indicates the Bank of Japan's Tankan, the nation's most-watched business survey, next week is likely to show confidence will worsen as companies struggle with oil costs that have doubled in the past year.

“The risk of a recession is rising,'' said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute and a former Bank of Japan official. “The Tankan will confirm just how bad the situation is.''

The Nikkei 225 Stock Average slid 1.2 percent to 13,779.81 at the lunch break in Tokyo. The yield on Japan's 10-year bond fell 4.5 basis points to 1.715 percent, the lowest in two weeks.

Sentiment at all companies dropped to minus 15.2 percent, also the lowest since the current survey began four years ago. Automakers led the decline, as the industry's index slumped to minus 34.1 points from zero.

Automakers Pessimistic

Toyota Motor Corp. and Japan's seven other passenger-car makers all forecast profit will decline in the year ending March because of a stronger yen, weaker demand in the U.S., and rising costs of raw materials.

Exports, one of the main drivers of Japan's first-quarter growth, are slowing. Shipments overseas probably rose 0.7 percent in the second quarter, economists predict, after climbing 4 percent in the three months ended March.

Shipments to the U.S., Japan's biggest market, have slumped for eight months and record oil and commodity prices are squeezing margins, making each sale less profitable http://us-no-fax-payday-loans.com. A Finance Ministry report this month showed earnings fell the most in the first quarter since Japan emerged from a recession in 2002.

Record commodity costs pushed wholesale inflation to 4.7 percent in May, the steepest rate in 27 years. Crude oil prices have climbed 96 percent in the past year and reached an unprecedented $139.89 a barrel on June 16. Japan imports virtually all of its oil.

Tankan Survey

Today's report “is a leading indicator for the BOJ's survey, and the result backs surging expectations that Tankan sentiment will deteriorate,'' said Akihiko Yokoyama, chief fixed-income strategist at JPMorgan Chase & Co. in Tokyo.

Tankan large-manufacturer sentiment will drop to 3 points from 11, according to the median estimate of economists surveyed by Bloomberg News. The central bank will release the survey on July 1 at 8:50 a.m. in Tokyo.

The Bank of Japan is surveying companies through the end of this month, making the Tankan Japan's most current gauge of business confidence. The government gathered most of its responses for today's report at the end of May.

Unlike the Tankan, which measures the level of confidence, the government survey examines the degree of change in sentiment from the previous quarter.

Business conditions may pick up next quarter. An index of manufacturers' outlook for sentiment in three months was at 5.3 points, indicating optimists outnumber pessimists. Manufacturers said they will increase spending by 9.3 percent this fiscal year.

Prospects for the U.S. economy have improved since a housing slump brought it to the brink of a recession. U.S. retail sales rose for a second month in May and Federal Reserve Chairman Ben S. Bernanke said June 9 that “the risk that the economy has entered a substantial downturn appears to have diminished.''

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