In a new analysis, the department also said Japanese demand for rice and wheat could strengthen as consumers shift away from more expensive meat and other animal products.

The spillover effect of the weaker yen also could make it more difficult for southeast Asian nations to export their way out of their financial difficulties since Japan is top market for most of their goods, the analysis said.

And in a related development, Chinese feed grain demand is likely to continue growing at a sluggish pace -- which will enable China to remain a corn exporter, the department said.

"While imports of feed grains by Japan thus far in 1998 are moving along at a pace unchanged from the past several years, there are signals this may not continue," the department said.

Not only has Japanese compound feed production fallenmarginally, but compound feed sales to Japanese feed lots are down nearly 6 per cent from last year while inventories are nearly 30 per cent higher, the department said.

Japanese dairy, livestock and poultry herds are also declining, the department said. The rise in compound feed inventories "sends a very clear signal to feed compounders not to continue purchasing corn at the present pace, particularly as the faltering yen makes imports more expensive," the department said.

The analysis also notes that the weaker yen will have far-reaching consequences beyond the Japanese border. Japan is by far the largest trading partner with southeast Asia and over one-quarter of China's foreign exchange reserves are held in yen, the department said.

The weaker the yen, the more it costs Japanese consumers to purchase imported goods, thus reducing the ability of southeast Asian nations to "export themselves out of a crisis," the department said.

The weaker yen also puts more pressure on the Chinese currency, therenminbi, which has so far stayed firm during the Asian financial crisis, the department said.

"A decrease in the renminbi's value would likely spark an additional round of Asian currency devaluations, impacting feed grain demand throughout the region," the department said.

Meanwhile, the strength of the renminbi -- compared with other Asian currencies -- is slowing Chinese economic growth as its exports become less competitive, the department said.

Reduced capital inflows are also slowing job creation in China's non-state sector, making the restructuring of state-owned enterprises more difficult, the department said.

"The will pressure the Chinese government to keep grain support prices at high levels to minimise population migration to urban areas, where unemployment is already high," the department said.

The quicker the Japanese economy recovers, the sooner feed grain demand in Asia will rebound, the department said. While a weaker yen could help Japan climb out of its recession by making itsexports more competitive, "it is crucial that the yen not fall too far" because that would spark another round of devaluations, the department said.

Meanwhile, Japan's Asian neighbours South Korea is planning to buy US wheat. South Korea's Cheil Jedang Corp and Dongah Flour Mills Co Ltd jointly invited tenders to buy 21,000 tonnes of US No1 wheat on Tuesday, traders said.

Cheil Jedang wanted to buy 11,000 tonnes at basis prices over September futures on the US grain futures exchanges including the Chicago Board of Trade, while Dongah Flour was seeking 10,000 tonnes at fixed prices, they said.

Shipment was set for September 15-October 15 to the western Port of Inchon.They said the two companies invited the tenders on condition that they could use either a 180-day banker's usance or the US export credit guarantees.