FOREX TRADING

On top of collapsing export sales as recession spreads around the world, many Japanese firms face strains in their balance sheets because seized-up credit markets have hit the issuance of bonds and commercial paper. Many also have large holdings in stocks that have tumbled in value, with Tokyo's broad Topix share index ending Tuesday at a 25-year closing low.

Yosano also said another state-backed bank, the Development Bank of Japan, was ready to expand an existing domestic emergency loan scheme for companies to 1.5 trillion yen from the current 1 trillion yen over the end of the financial year.

Chronic fear of default is making low-cost funds harder to come by, especially in the United States, even for cash-rich companies such as Toyota.

A Toyota spokeswoman said wholly owned Toyota Financial Services, which has assets of 14.3 trillion yen ($147 billion), was in talks with JBIC for a loan to help cover rising credit costs.

No decision has been made on the size of the loan, the timing or the currency denomination, she said, adding that the company may also apply for support from other countries.

"Toyota is not in danger. It's out to get the lowest price for funding that the strength of its credit can get," said Yasuaki Iwamoto, an analyst at Okasan Securities. "On the balance sheet, it doesn't matter if the funds are private or public."

The global economic slump has sent Japanese exports of cars and electronics plunging, and the economy is seen headed for its longest recession in modern times.

Company earnings have worsened as recession spreads around the world, eroding firms' credit-worthiness and raising concerns that liquidity will remain constrained for months.

U.S. corporate bond spreads widened on Monday due mainly to weakness in the financial sector. The cost of insuring corporate debt with credit default swaps rose sharply, with the main index of investment-grade credit default swaps widening by 14 basis points to 238 basis points, data from Markit Intraday showed. [ID:nN02567971]

To ease the crunch in Japan, the Bank of Japan has programmes to buy corporate bonds, commercial paper and stocks from banks.

The government is also looking at expanding share buying and taking other steps to support the stock market amid growing fears for the economy as sliding share prices erode banks' capital.

Japan manages its foreign reserves very conservatively but announced last year it would allow JBIC to exchange some of its yen funds for dollars from the reserves. [ID:nT242570] (Additional reporting by Mayumi Negishi; Editing by Rodney Joyce)