http://www.bloomberg.com/By Daisuke Takato and Yoshiko Matsushita, with reporting by Lily Nonomiya
Tokyo, Oct. 1 (Bloomberg) -- Large Japanese manufacturers remained pessimistic for a seventh quarter, suggesting they have little faith in Prime Minister Junichiro Koizumi's promises to stimulate a recovery in the world's second-largest economy.
The Bank of Japan's quarterly Tankan index, the most widely watched measure of confidence among large manufacturers, rose 4 points to minus 14 in September. A negative number means pessimists outnumbered optimists.
The report comes a day after Koizumi replaced his top banking regulator, aiming to speed the disposal of about $430 billion of bad loans that have paralyzed banks and starved the economy of fresh credit. The new minister, Heizo Takenaka, says the government should consider using public money to bail out banks. His predecessor opposed that.
``The government has to come up with comprehensive measures to speed up bad debt write-offs and revive the economy,'' said Tomoko Fujii, a senior economist at Nikko Salomon Smith Barney Ltd. ``Japan is in an extremely difficult situation.''
Japanese stocks fell, led by manufacturers such as Kyocera Corp. The Nikkei 225 Stock Average slid 1.9 percent to 9201.01 as of 1:13 p.m. Tokyo time.
The yen was weaker at 122.11 to the dollar at 1:13 p.m. Tokyo time, compared with 121.74 late yesterday in New York.
The Tankan's minus 14 reading matched the expectations of 34 economists in a Bloomberg News survey. The 4-point rise follows a record 20-point gain in June.
Yen Gains
The yen's 7.8 percent rise this year has hurt Japanese exports, which fell for a third month in August. That has sapped profit at companies such as Sanyo Electric Co. and undermined the economic recovery. Exports accounted for half of the 0.6 percent growth in the second quarter, the first in more than a year.
Large manufacturers surveyed by the Bank of Japan are expecting an average exchange rate of 122.70 yen to the dollar for the fiscal year ending March 31. In June, companies predicted 125.73 yen.
The slowdown in the U.S., Japan's biggest overseas market, is also hurting. U.S. economic growth slowed to an annual pace of 1.3 percent in the second quarter from 5 percent in the first.
Sanyo Electric, the world's biggest maker of digital cameras and mobile-phone batteries, cut its profit forecast for the half- year ended Sept. 30 by 80 percent on the cost of job cuts and a global slump in demand for consumer electronics.
Large manufacturers expect profit growth to slow to 31 percent in the year ending March 31 from the 34.1 percent gain forecast in the June survey, today's Tankan report showed.
Not Spending
Four years of falling consumer prices are eroding earnings and discouraging companies from spending to expand their business. The report showed that businesses plan to cut spending 9.2 percent this fiscal year, more than the 8.9 percent drop forecast in June.
Mitsubishi Cable Industries Ltd., a Japanese maker of cables and communication equipment, last week reversed its full-year profit forecast to a loss and said it will shed 670 jobs, or about 30 percent of its workforce, by offering early retirement or moving workers to subsidiaries.
Job cuts are keeping the unemployment rate at 5.4 percent, close to December's record-high 5.5 percent. That's hurting consumer spending, curbing sales and profit at retailers, wholesalers and other service providers.
Confidence among such large non-manufacturers rose to minus 13 from minus 16 in June, today's report showed.
``This report confirms that the pace of recovery has slowed, and the rebound in non-manufacturers and smaller companies is lagging, suggesting that domestic demand has been weak,'' said Yasukazu Shimizu, a senior economist at Aozora Bank Ltd. ``The stronger yen means companies will generate less profits.''