* Govt survey suggests weak yen starting to harm confidence
* Confidence hurt by rising import costs, labour shortage -MOF
* Capex seen up 5.1 pct in FY2014/15; fall 3.9 pct in FY2015/16 (Adds analyst quotes, details)
By Tetsushi Kajimoto
TOKYO, March 12 (Reuters) - Confidence at big Japanese manufacturers worsened in January-March and is seen turning negative in the second quarter as a slumping yen ramped up the costs of raw material imports, a survey showed, complicating Tokyo's stimulus-driven campaign to revive the economy.
The quarterly poll by the Ministry of Finance and the Cabinet Office released on Thursday suggests the drawbacks of a weak yen may be outweighing its benefits, which have not spread to broader sectors of the economy.
The loss of confidence comes as the Bank of Japan remains committed to its massive monetary easing programme even as the U.S. Federal Reserve moves closer to raising interest rates, triggering a renewed slide in the yen.
The yen skidded to 8-year lows against the dollar to above 122 yen on Tuesday, on expectations the Fed may raise rates as early as in June, heightening worries that an unrelenting drop in the Japanese currency could prove more harmful in the long run.
"It could be worrisome if the yen depreciation accelerates under the current deflationary circumstances where companies are unable to pass on costs, causing a profit-squeeze," said Takeshi Minami, chief economist at Norinchukin Research Institute.
The business survey index (BSI) of sentiment at large manufacturers stood at plus 2.4 in January-March, compared with plus 8.1 in the prior three months.
The sentiment index is seen deteriorating further to minus 0.9 in the second quarter.
"We hear from companies that they are facing rising raw materials costs on higher import prices, a labour shortage and increase in electricity bills," said a finance ministry official.
Last month, major utilities raised electricity charges due to a weaker yen, but they are set to cut utility bills in April as they reflect tumbling oil and LNG prices with a lag.
Prime Minister Shinzo Abe is closely watching the yen's weakening trend, which could damage companies that import materials and are unable to pass on costs, his key economic adviser Etsuro Honda told Reuters on Tuesday, adding the dollar around 120 yen is not problematic for the economy as a whole.
The survey also showed Japanese firms are expected to raise capital spending in the current fiscal year to March, but they are seen cutting expenditure in the next fiscal year, adding to concerns about business investment following recent soft indicators.
However, the finance ministry official told reporters companies tend to show moderate capital spending plans for the next fiscal year at this time of year, and to revise up their investments when they firm up plans as the year progresses. (Editing by Shri Navaratnam and Jacqueline Wong)