TOKYO - JAPAN will use US$5 billion ($7.7 billion) from its foreign currency reserves to help companies raise funds during a worsening recession in Asia's largest economy, the finance minister said on Tuesday.

Tokyo will lend the money to the state-backed Japan Bank for International Cooperation (JBIC) to keep credit flowing, Kaoru Yosano told reporters.

'Taking into account the current severe conditions for those trying to procure foreign funds, we've decided to lend foreign currencies (from the reserves) to the JBIC as a temporary, extraordinary measure,' Mr Yosano said.

Toyota Motor Corp.'s financial unit said Tuesday it had asked to borrow money from the JBIC, with local media putting the request at about US$2 billion dollars. It would be the bank's first loan to a Japanese auto maker.

Japan has foreign exchange reserves of more than one trillion dollars, the second-largest in the world after those of China.

The government has already announced a series of steps to stimulate the economy, including a plan to hand two trillion yen (S$32.5 billion) back to the public to kick-start consumer spending.

Japan said last week that it had started work on an emergency plan to halt a plunge in share prices that Tokyo fears could deepen the recession in Asia's biggest economy. It did not say what form any action might take.

The government is reportedly considering using public funds to purchase stocks and other assets directly from the market to prop up prices. The Nikkei stock index has fallen more than 18 per cent in 2009, approaching levels last seen in 1982, after a record 42 per cent plunge last year.

Japan is concerned that its banks, which have big investments in the stock market, will scale back lending as a result of the financial turmoil.

Mr Yosano said that excessive falls in share prices could not be ignored, as the Nikkei slid near to a fresh 26-year low. 'We shall calmly monitor the movement. But we cannot overlook excessively large falls,' said Mr Yosano, who is also the economics minister.