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Confidence among Japanese manufacturers held near a four-year low as the global financial crisis threatens to smother demand in the country's export markets and higher raw-material costs erode profits.

Sentiment among manufacturers was minus 10 points this quarter compared with minus 15.1 points three months earlier, a survey by the Cabinet Office and Finance Ministry showed today. A negative number means pessimists outnumber optimists.

Japan's economy, the world's second largest, is in a recession and probably won't recover until next year as exports weaken and rising prices at home discourage consumers from spending, economists say. Market turmoil spurred by Lehman Brothers Holdings Inc.'s bankruptcy may prolong the slump by cooling overseas demand for Japanese goods further.

“Japan's business confidence is in bad shape,'' said Masaru Hamasaki, a senior strategist at Toyota Asset Management Co., which manages the equivalent of $3.3 billion. “Given that the economic slowdown is spreading around the world, we can't be optimistic about the outlook for Japan's economy.''

The yen traded at 105.54 per dollar at 10:13 a.m. in Tokyo from 105.65 before the report was published.

Bank of Japan Governor Masaaki Shirakawa said last week there's no end in sight to the financial turmoil that has erased more than $14 trillion from world markets this year. Shirakawa didn't say whether the central bank would consider cutting interest rates, which at 0.5 percent are the lowest among industrialized nations. “All options are open,'' he said.

Tankan Survey

Today's report offers a hint of the results likely to emerge in the Bank of Japan's Tankan survey due Oct no fax payday loans. 1. That survey, the nation's most closely watched gauge of corporate confidence, will probably show sentiment among large manufacturers dropping to its lowest level in five years, according to economist forecasts.

“The main risk is a deeper or longer recession due to the ongoing slide in global financial markets,'' said Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo.

Slumping U.S. and European sales has hurt profits at exporters including Canon Inc. Earnings at the company, which depends on North America for about 30 percent of its sales, will decline this year for the first time since 1999, according to a report this month by the Nikkei newspaper.

Markets outside the U.S. are also deteriorating. The European economy shrank for the first time in almost a decade last quarter, and EU Commissioner Joaquin Almunia said this month the outlook is “unusually uncertain.''

Sales of construction equipment by companies including Komatsu Ltd. will fail to meet industry forecasts because of lower demand from India and China, the Japan Construction Equipment Manufacturers Association said last month.

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

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 August.

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