Japan government offers $16.7 billion to help squeezed firms

By Leika Kihara

TOKYO (Reuters) - The Japanese government launched on Tuesday a $16.7 billion scheme to buy shares in companies whose future has been threatened by the financial crisis, in a new move to ease the credit crunch that has starved key industries of cash.

Japan's central bank is already buying corporate debt to help firms raise funds, and the government has offered funds to help banks lend more, but sliding exports and frozen credit markets still threaten industrial firms at the heart of Japan's economy.

Confirmation of the capital injection scheme pushed Japanese stocks higher, taking the Nikkei share average's gains for the day to 4.6 percent, but dragged on already falling bonds and the yen.

"For the moment, this is a positive for the stock market," said Soichiro Monji, chief strategist at fund manager Daiwa SB Investments.

"Bankruptcies have been increasing, and not only among financial firms. There have been reports that funding has been tight at many large corporations. This is a plus in that it should help ease that funding squeeze."

Japan is following in the footsteps of the United States, which has also gone beyond banks to bail out its auto sector on the argument that the credit crunch threatens firms by removing their access to cash.

Tokyo's move may provide a lifeline for small- and medium-sized enterprises, which account for about 70 percent of employment in Japan and which are finding it much harder than big corporates to raise funds in the credit crunch.

While individually small, such firms are crucial suppliers to big brand manufacturers.

They have been hit hard by sliding demand for Japan's cars, technology and other exports has seen industrial production slide at a record pace, with no sign yet of a turnaround.

"We want to support companies that we think are important for Japan and for regional economies, regardless of their size," said Economy, Trade and Industry Minister Toshihiro Nikai.

Japanese bankruptcies jumped 24 percent in December from a year earlier and there were 33 among listed firms last year -- the highest annual tally in at least 60 years.

The government capital will be provided through its affiliated banks buying shares in both listed and unlisted companies, the Ministry of Economy, Trade and Industry said.

The ministry had set aside 1.5 trillion yen ($16.7 billion) to cover any losses that result, an official said.

The money would only go to firms facing difficulty in fund-raising due to market turmoil, and those receiving the funds will be required to draw up plans to boost profitability within three years, the ministry said in a statement.

"We're not specifying any sectors. Our ministry looks at manufacturers and companies in the service sector, but firms that are in the scheme aren't limited to the sectors that our ministry oversees," a ministry official said.