TOKYO - THE Bank of Japan will introduce new emergency measures to help struggling firms borrow money amid a recession in Asia's largest economy, media reports said on Monday.

The Bank of Japan (BoJ) will hold an extraordinary meeting as early as this week to adopt the steps, public broadcaster NHK and other local media said without naming their sources.

The BoJ announced similar measures to help companies in November 1998 when Japan was hit by a credit squeeze after a number of banks collapsed under mountains of bad debts.

Companies are again facing difficulty in raising funds, with the world's second largest economy officially in recession and banks becoming reluctant to lend. Demand for corporate bonds is also low amid the financial turmoil.

The BoJ will reportedly discuss measures to provide financial institutions with funds to facilitate lending to companies as borrowing needs rise towards the end of the fiscal year to March 31.

Among the measures, the BoJ may accept corporate bonds with lower-than-usual credit ratings as collateral for lending to commercial banks, the reports said.

The funds would be for up to April to tide companies over until the end of the fiscal year, they said.

The central bank declined to confirm the reports.

'Nothing has been decided on whether the Bank will take the same measures as the ones taken in 1998,' a BoJ spokesman said.

The Bank in October cut its super-low interest rates for the first time in seven years, by 20 basis points to 0.3 per cent, as part of its efforts to calm volatile markets and boost the recession-hit economy.

BoJ governor Masaaki Shirakawa has since warned that cutting interest rates too much could prevent money markets functioning efficiently, dampening speculation about a further reduction in borrowing costs.

Concerns have deepened about the health of the Japanese economy following a slew of gloomy data released Friday showing drops in factory output and consumer spending.

'I cannot tell you it will be a bright next day,' Mr Kaoru Yosano, the economics minister, told the Financial Times in an interview published Monday.

'We are moving to the next phase of shrinking consumption - some call it deflation - production going down and prices going down.' -- AFP