Japan, China and South Korea will create a joint financial regulatory body to help stabilise the Asian financial market, according to sources.

The new organisation aims to become an Asian version of the Financial Stability Forum (FSF), which the Group of Seven industrialised nations launched in 1999 in response to the Asian financial crisis, the sources said. Japan, China and South Korea also will urge members of the Association of Southeast Asian Nations to join the framework, the sources said.

The group's first meeting will be held in Tokyo as early as November, and will discuss measures to stem the effects of the global credit crisis on the Asian economy.

According to the sources, the entity was proposed by Japan. Representatives from each finance ministry, central bank and financial regulatory authority in the three nations will meet periodically. They are expected to discuss a system that would check whether major financial institutions operating in Asia properly manage their financial health, loan status and investment risks.

Stock markets have dived in Asia amid the worldwide financial crisis, hurting the real economies. Analysts say even emerging economies with high growth rates may slow.

The three countries believe Asia needs its own stabilising measures aside from the G-7 framework, the sources said.

Regionwide efforts for financial stabilisation are important for Japanese financial institutions. An increasing number of the nation's banks and insurance companies are expanding into Asia, especially China and member countries of Association of Southeast Asian Nations (Asean), setting up local subsidiaries and forming capital or business alliances with local companies.

Like the G-7's FSF, the new body is expected to actively suggest a tightening of rules and regulations to monitor the health of financial institutions and measures to improve their transparency, the sources said.

The creation of an Asian version of the FSF is expected to send a clear message that Asia, which experienced a currency crisis in the late 1990s, is prepared to keep its house in order.

For Japan, it may become a platform to demonstrate its presence and capability as a country that has overcome a domestic financial crisis by itself. Damage incurred by the nation as a result of the current global crisis has been relatively small, compared to the United States and European nations.