July 1 (Bloomberg) -- Sentiment among Japan’s largest manufacturers rose less than estimated in June, signaling the economy may be slow to recover from its deepest postwar recession.

An index of confidence among large makers of electronics, cars and other products climbed to minus 48 from a record minus 58 in March, the Bank of Japan’s Tankan survey showed today in Tokyo. Economists surveyed by Bloomberg News predicted minus 43. A negative number means pessimists still outnumber optimists.

Big companies surveyed plan to cut spending at a faster rate than they predicted three months ago as profits decline and factories lie idle amid weak global demand. The report provides the latest indication that Japan’s likely expansion last quarter was short lived after figures over the past week showed a revival in industrial production may wane, job prospects worsened and deflation returned.

“The improvement is good news but this Tankan makes me very skeptical about the sustainability of the recovery,” said Takahide Kiuchi, chief economist at Nomura Securities Co. in Tokyo, who correctly forecast the survey result. “Japan’s economy may start to deteriorate after the third quarter because demand hasn’t rebounded.”

The yen traded at 96.82 per dollar at 11:42 a.m. in Tokyo from 96.27 before the report. The benchmark Topix index of shares rose 0.1 percent. The gauge climbed 20 percent last quarter, its biggest gain in more than two decades.

Mixed Picture

Reports since yesterday provide a mixed picture of a global economy that’s struggling to emerge from the worst recession since the Great Depression. U.S. consumer confidence fell in June and the U.K. economy shrank the most since 1958 in the first quarter. In contrast, Chinese manufacturing expanded for a fourth month in June and South Korean exports fell the least in eight months.

Even with the improvement in Tankan sentiment, the first in more than two years, large manufacturers and service companies remain more pessimistic than they were at any time during the previous recession, which ended in 2002.

Confidence at big non-manufacturers rose to minus 29 points from minus 31. Large manufacturers and service companies both expect to be less gloomy in September.

Large businesses plan to slash capital spending by 9.4 percent in the current business year, more than the 6.6 percent predicted three months ago and the worst-ever projection for a June Tankan. They said profits will tumble 19.8 percent, more than the 11 percent predicted in March, the report showed.

Weakening Production

Exports and output have fallen by about a third from last year’s levels. While production has increased month-on-month since March, manufacturers plan to slow the pace of gains in June and July, the Trade Ministry said this week.

Toyota Motor Corp.’s credit rating was cut two notches to A+ by Fitch Ratings today on concerns that demand for autos is “likely to remain weak.”

Demand for workers remains close to the weakest in seven years, with the Tankan labor index falling two points to 33. The number has been positive since December, meaning companies have too many workers.

The unemployment rate surged to a five-year high of 5.2 percent in May, a report showed yesterday, and economists predict it will surge to a record 5.8 percent next year. The ratio of jobs to applicants fell to a record low in May, and wages declined for a 12th month. Employees at the country’s biggest companies will have their summer bonuses cut 18.3 percent this year, according to business lobby Keidanren.

Worst Over

Still, the worst of Japan’s slump is probably over as $2.2 trillion in stimulus spending worldwide helps to prop up sales for businesses including machinery-maker Komatsu Ltd. The world’s second-largest economy grew an annualized 2.3 percent last quarter, economists predict, following a record 14.2 percent contraction in the first three months of 2009.

“This recession had a very, very deep bottom,” said Tetsuro Sugiura, chief economist at Mizuho Securities Research Institute in Tokyo. “Even if the recovery doesn’t have that much traction, at least we’re not in freefall anymore.”

Prime Minister Taro Aso’s 25 trillion yen ($261 billion) in consumer incentives, job support, and infrastructure spending since October have bolstered household confidence, which rose to a 14-month high in May. Aso may call for a general election to be held on Aug. 8, the Yomiuri newspaper reported today, citing unidentified advisers to him.

Tightening Purses

“The stimulus package has benefited a few products, mainly electrical appliances and cars. But bonuses are falling and people are losing jobs,” said Mizuho’s Sugiura. “Even if consumers aren’t panicking, rational people tighten their purse strings in circumstances like these.”

China’s 4 trillion yuan ($586 billion) stimulus has buoyed sales of Japanese cars, electronics and machinery even as demand from the U.S. and Europe flounders.

Komatsu, the country’s biggest maker of construction equipment, last week said Chinese sales will be better than expected previously as the stimulus plan fuels an increase in infrastructure projects. The company estimates sales in China rose between 10 percent and 20 percent in June.

The Bank of Japan surveyed 10,319 companies between May 26 and June 30.

To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net

Last Updated: June 30, 2009 22:45 EDT